Carney Defends BOE's Actions on Brexit, Disagrees With Haldane

  • Lawmakers question BOE policy makers at hearing in London
  • Governor says EU exit process could still amplify threats

Mark Carney, governor of the Bank of England.

Photographer: Andrew Harrer/Bloomberg

Mark Carney kicked off the year with a renewed defense of the Bank of England’s actions to mitigate Brexit threats and said the risks have diminished since the June referendum.

The governor’s vigorous argument came less than a week after a mea culpa from the BOE’s chief economist, who said that forecasters are facing a crisis after the U.K. proved unexpectedly resilient in the wake of vote to leave the European Union.

In response to questioning from lawmakers in London, Carney sought to distance himself from Andy Haldane’s comments. Because BOE measures led to less disruption of the financial industry, that’s “perversely” causing them to be interpreted as incorrect, he said.

“The risk analysis around Brexit, I think was right,” he said. “The bank correctly identified, in my judgement, a risk to the financial sector of a certain outcome in the Brexit vote. It helped take that risk off the table.”

Healthy Disagreement

Haldane said last week that it was a “fair cop” that the BOE -- in common with almost all mainstream forecasters -- expected a sharper slowdown after the referendum. He also said that officials haven’t changed their view of the longer-term effects of leaving the EU.

“One of the advantages of banishing group think is that one doesn’t always agree with everything that’s said by colleagues,” Carney said, referencing Haldane’s suggestion that the profession suffers from a dearth of new ideas. 

He added that he’s spoken with Haldane “about what he was trying to say” about the profession’s shortcomings, and they agreed that while “missing the financial crisis is a big deal, a couple of good quarters is nice to have. It’s a different order of magnitude.”

Policy makers, who raised their growth forecasts in November, may do so again as “recent data would be consistent with some further upgrade,” the governor said. He added that there’s been a “notable” increase in inflation.

Carney also told Parliament’s Treasury Select Committee that the threats to the U.K. financial system are now less pronounced than had been anticipated, with some of that due to BOE actions. But there’s still a risk that the exit process could “amplify” certain risks.

“In the run up to the referendum, we felt it was the largest risk because here were a series of positions and possibilities in the financial sector -- things that could have happened -- that would have had financial stability consequences,” he said. “Having got through the night and the day after, the scale of the immediate risks around Brexit have gone down for the U.K.”

The BOE’s record is set to stay in focus this year with lawmakers reviewing the effectiveness of its aggressive policy loosening after politicians including Prime Minister Theresa May questioned its adverse side effects. The BOE’s governing body is already concerned about the institution’s reputation after accusations in 2016 that it meddled in the Brexit vote.

Carney was unwavering in his view that actions to prevent any market turmoil from disrupting banks after the Brexit were right.

“We catalyzed contingency plans, actions, pre-positioning of capital, other steps with major central banks, and actual better risk management, which helped ensure a smooth process,” he said. This “put the country in a better place to take advantage of the opportunity.”

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