October 26, 2016

Bank of England warns of Brexit risks, provoking ire of eurosceptics

Exiting the European Union could hurt Britain’s $2.9 trillion economy and prompt some banks to abandon London’s global financial powerhouse, Bank of England Governor Mark Carney said on Tuesday.

In his strongest intervention so far in Britain’s debate about EU membership, Carney said he was not making any recommendation about how to vote in the June 23 referendum but that uncertainty created by an exit could hurt the economy.

Asked about the implications of an exit for Britain’s huge banking industry, he said some major financial institutions were considering a possible move if the country voted to leave the EU.

“One would expect some activity to move,” Carney told lawmakers in the British parliament. “I’d say a number of institutions are contingency planning for that possibility.”

After clinching a deal from other European Union leaders last month in Brussels, Prime Minister David Cameron asked the central bank, which is independent from the government, to set out the facts about membership.

Though Carney also said there were risks from remaining inside the EU due to the greater integration planned by the 19-member euro zone, he praised Cameron’s deal.

“The settlement addresses the issues the Bank identified as being important, given the likely need for further integration of the euro area, to maintaining its ability to achieve its objectives,” Carney, a Canadian, said in a letter to British lawmakers.

Adding caveats to many of his assessments, Carney said the BoE was not taking a view on the long-term implications for Britain’s economy of a Brexit, as leaving is known, but there could be a short-term hit to growth if the country decides to leave the bloc.

“There could be lower levels of activity because of the degree of uncertainty that could affect investment and household spending,” Carney told a parliamentary committee.

Under questioning by lawmakers, Carney came in for harsh criticism from one eurosceptic member of Cameron’s party for a BoE report published in October which gave a positive assessment of Britain’s membership of the EU.

Jacob Rees-Mogg said it was “beneath the dignity” of the BoE to make “speculative” comments about the benefits of EU membership.

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