October 27, 2016

Bank of England’s Carney denies overstepping mark with Brexit warning

BoE’s Mark Carney

Bank of England Governor Mark Carney denied on Sunday that he had compromised the central bank’s independence by warning of the short-run costs of leaving the European Union, after criticism from “Out” campaigners.

Last week the BoE said Britain risked slower growth, higher inflation and even recession if voters backed leaving the EU in a referendum on June 23, prompting criticism that the BoE was biased and itself destabilising markets.

Carney, in a BBC television interview on Sunday, said he had “absolutely not” overstepped the mark and that he would be failing the public if he did not flag dangers in advance.

“We … have a responsibility to explain risks and then take steps, because by explaining them – by explaining what we would do to mitigate (them) – we reduce them. And that is the key point, ignoring a risk is not to reduce it.”

Earlier on Sunday, Conservative environment minister and “Out” campaigner Andrea Leadsom told the BBC that the BoE’s analysis was one-sided and reflected the view of elites who were not hurt by mass immigration from the EU.

“There is this big institutional ganging-up on the poor British voter,” she said.

Prime Minister David Cameron and the leaders of Britain’s other main political parties, as well as international bodies such as the IMF, all support Britain staying in the EU.

But many Conservative lawmakers and party members want to leave, and polls show public opinion is evenly divided.

Jacob Rees-Mogg, a “Brexit”-backing Conservative member of the parliamentary committee which scrutinises the BoE, reiterated his view that Carney was no longer suitable to lead the central bank after last week’s comments.

“He should be fired, absolutely,” he told broadcaster ITV. “We now cannot trust the Governor of the Bank of England to set interest rates for anything other than the benefit of the government.”

Carney said the BoE’s job of ensuring financial stability and steering inflation back to its 2 percent target required it to be frank about short-term economic risks, such as a vote to leave the EU, that could hamper achieving these goals.

He added that he thought it “highly, highly unlikely” that the BoE would cut interest rates below zero if the economy slowed sharply, an option some of his colleagues on the BoE’s Monetary Policy Committee have said they are open to.

If interest rates did need to rise, Carney said he was confident that British households – unlike some in the United States in the past – would still be able to service their debts, albeit at a cost to overall consumer demand.

Last week Carney said it not clear if the BoE would need to cut rates, or to raise them, if Britain voted to leave the EU.

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