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Bank of England warns about Brexit dangers, and triggers major controversy

Friday, May 13th 2016 - 11:43 UTC
Full article 11 comments
Carney said the Bank must assess the implications of the UK's EU membership and has a duty to report evidence-based judgments to Parliament and to the public. Carney said the Bank must assess the implications of the UK's EU membership and has a duty to report evidence-based judgments to Parliament and to the public.
The latest minutes from the Bank's Monetary Policy Committee (MPC) said that a leave vote may cause both growth and sterling to fall and unemployment to rise. The latest minutes from the Bank's Monetary Policy Committee (MPC) said that a leave vote may cause both growth and sterling to fall and unemployment to rise.
Chancellor Osborne said the UK now had a “clear and unequivocal warning” from the MPC as well as the Governor of the BoE about the risks of a Leave vote, Chancellor Osborne said the UK now had a “clear and unequivocal warning” from the MPC as well as the Governor of the BoE about the risks of a Leave vote,
Treasury Select Committee member Jacob Rees Mogg called on Carney to resign: “suggesting sterling will fall sharply is simply not responsible central bankers do”. Treasury Select Committee member Jacob Rees Mogg called on Carney to resign: “suggesting sterling will fall sharply is simply not responsible central bankers do”.
Former Work and Pensions secretary Iain Duncan Smith said that Carney needed to be “very careful” about making such comments. Former Work and Pensions secretary Iain Duncan Smith said that Carney needed to be “very careful” about making such comments.

The Bank of England has given its starkest warning yet that a UK vote to leave the EU could hit the economy. Mark Carney, the Bank's governor, warned that the risks of leaving “could possibly include a technical recession”.

 Prime Minister David Cameron said the warning amounted to “a very clear message” of the dangers of Brexit. But vote Leave campaigners have strongly criticised Mr Carney, with one calling for him to resign. However, a spokesman for Mr Carney rejected the call, saying the Bank had “a duty” to make its judgments known.

The latest minutes from the Bank's Monetary Policy Committee (MPC) said that a leave vote may cause both growth and sterling to fall and unemployment to rise.

Carney said the Bank had not compiled formal forecasts about the possibility of a recession - defined as two consecutive quarters of negative growth - resulting from a Brexit vote.

Chancellor George Osborne said the UK now had a “clear and unequivocal warning” from the MPC as well as the Governor of the Bank of England about the risks of a Leave vote.

“The Bank is saying that it would face a trade-off between stabilizing inflation on one hand and stabilizing output and employment on the other,” he said.

“So either families would face lower incomes because inflation would be higher, or the economy would be weaker with a hit to jobs and livelihoods. This is a lose-lose situation for Britain. Either way, we'd be poorer.”

Jacob Rees Mogg, a Tory MP and Treasury Select Committee member, called on Carney to resign.

“I think it is unprecedented for the governor of a central bank to suggest that people should short his own currency. Suggesting sterling will fall sharply is simply not what responsible central bankers do,” he said.

Former Work and Pensions secretary Iain Duncan Smith said that Carney needed to be “very careful” about making such comments.

Lord Lamont, the former Chancellor and Vote Leave spokesman, said: “The governor should be careful that he doesn't cause a crisis. If his unwise words become self-fulfilling, the responsibility will be the governor's and the governor's alone. A prudent governor would simply have said that 'we are prepared for all eventualities'.”

In response, a spokesman for Carney said: “The Bank of England has not made, and will not make, any overall assessment of the economics of UK's membership of the European Union.

”At the same time, the Bank must assess the implications of the UK's EU membership for our ability to achieve our core objectives and we have a duty to report our evidence-based judgments to Parliament and to the public. That is the fundamental standard of an open and transparent central bank.

“Assessing and reporting major risks does not mean becoming involved in politics; rather it would be political to suppress important judgments which relate directly to the Bank's remits and which influence our policy actions.”

Categories: Economy, Politics, International.

Top Comments

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  • gordo1

    What major controversy? The Governor's statement was widely reported but that was yesterday - today it's gone away!

    May 13th, 2016 - 03:06 pm 0
  • Troy Tempest

    ”A prudent governor would simply have said that 'we are prepared for all eventualities'.”

    In other words, say nothing whatsoever and withhold the BoE's professional assessment of the impact.

    That doesn't sound responsible, either.

    Personally, I think the UK has a lot to lose by submerging themselves in the EU and being dragged down to the lowest common denominator.

    This is likely their last chance to bail, before too many changes are made.

    May 13th, 2016 - 03:28 pm 0
  • Conqueror

    One wonders whether Carney is, by nature, conservative with a small “c”. And how much his comments have been prompted by those of Lagarde. Interestingly, there's an article today giving 12 reasons why no attention should be paid to what Lagarde has said.

    The most important feature after Brexit will be the attitude and actions of the people. The people will need to be alert to financial institutions and employers taking regressive steps without justification. Brexit will mean that additional money will be available. Brexit will mean that Brussels rules and regulations can be junked unless worth can be seen in them. There would, for example, be opportunities to widen Britain's trade. It is often overlooked that trade can take more than one form. It is easy to view British trade as being composed of manufacturing goods and then exporting them. But there are still options, particularly with smaller countries, to take goods from country A to country B where there is a market, and then taking exchange goods from country B to country C. Creating a chain of transactions. At one time, Britain had the largest merchant fleet in the world. Nowadays that could be replaced by both waterborne and airborne transport. And, within the UK, there should be more emphasis on suitable goods being transported by rail rather than on the roads. Easing the strain on Britain's road system by making the majority of goods transportation short-haul in smaller vehicles. Making best use of containerisation and the roll-on, roll-off concept. What about increased use of air transport generally and helicopters in particular? It just needs vision and the will to succeed.

    May 14th, 2016 - 07:43 am 0
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