Carney Wades Deeper Into Brexit Debate Making Bank a Targetby
BOE sees risks to U.K. current account, pound, economy
Governor's remarks leave him open to criticism of bias
Mark Carney is getting dragged deeper and deeper into Britain’s biggest political debate for decades.
After trying to skirt the tense battle over membership of the European Union late last year, the Bank of England has waded into the fray as the vote draws closer. That has made its 51-year-old Canadian governor a political asset for Prime Minister David Cameron, who hired him on a 730,000-pound-a-year ($1 million) package in 2013.
Carney’s latest foray into the referendum campaign saw him warn that London’s status as a global financial center could be diminished if the U.K. left the EU. He also defended the central bank’s interventions in the debate and warned of broad risks to the economy. The comments -- prompting Investec to say the governor had joined the “Fright Club” -- came less than week after an ominous assessment of the impact of Brexit by the BOE’s Monetary Policy Committee.
That’s all a far cry from Carney’s position last October, when he published a report on how EU membership affects the bank’s ability to maintain monetary and financial stability. At a question-and-answer session at the launch, he said the BOE “won’t get drawn into the sort of counterfactual debate of what if we changed our relationship with the rest of Europe.”
Since then, Carney has said the vote poses the biggest risk to domestic financial stability, and that a vote to leave could mean banks pulling business out of the country and slower economic growth.
“The likelihood of the U.K. economy deteriorating if it votes out is significant. As a policy maker I think you have to be absolutely clear about that,” said Kallum Pickering, an economist at Berenberg Bank in London. “The danger is that the BOE is getting too tangled up in a debate where, say the Treasury or other entities, are pushing out point estimates, and that’s not something it wants to start discussing.”
At the House of Lords on Tuesday, Carney defended his intrusions into what is a deeply political issue, saying he has a duty to comment on risks. Addressing the cross-party panel of lawmakers, he said it would be “political to suppress important judgments.” A BOE spokesman said Carney had only commented on matters relating to the central bank’s remit.
A week ago, the BOE presented some of those judgments, saying uncertainty in the buildup to the referendum may already be weighing on growth. It added that Brexit would increase that uncertainty further, curb demand and weaken the pound.
Part of the problem for Carney is that his comments appear to back the “Remain” campaign, leaving him open to accusations of bias. He became embroiled in a similar controversy in the buildup to the Scottish independence vote in 2014.
Carney’s reference to “duty” this week can be seen as an attempt to head off further criticism after his head-to-head clash with a pro-Brexit lawmaker in March. During a previous parliamentary appearance, Jacob Rees-Mogg, a member of Cameron’s Conservatives, said Carney’s “pro-Europe” line was “beneath the dignity of the BOE.” That led to a sparky exchange between the two that dominated the hearing.
“I think the governor of the Bank of England has made all sorts of mistakes in how he’s intervened on this debate,” Dominic Cummings, the campaign director of the Vote Leave group that’s spearheading the Brexit effort, told the House of Commons Treasury Committee on Wednesday. “There are a lot of things the Bank of England has said recently which are scaremongering.”
Former BOE Governor Mervyn King noted on Wednesday that politics are overshadowing reasoned argument in the run-up to the vote.
“I do worry that proponents on both sides, treating this as a public-relations campaign rather than a debate about the future of our country, are inclined to exaggerate because they feel they’re selling a position,” he said in a Bloomberg Television interview. “What’s more important is that we have a calm and reflective debate about the role of Britain in Europe.”