Mark Carney has told Lords that the Bank of England will continue to talk about how the EU referendum affects the UK economy in the run-up to the vote, that he broadly agrees with the Treasury's analysis of the impact of Brexit and warned that London could lose its status as a "pre-eminent" financial centre.
Speaking to the House of Lords Economic Affairs Committee, Mark 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 of maintaining monetary and financial stability.
The Bank has 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.
The governor reiterated that the referendum was the most pressing risk facing the UK economy, noting that it would “reinforce existing vulnerabilities in relation to financial stability, including risks emanating from the very high current account deficit, property markets, market liquidity, and possible negative spillovers to the rest of the EU.”
On the controversial Treasury assessment, released yesterday, that suggests the UK economy would be six per cent smaller in the event of leaving the EU by 2030, Carney said:
The analytic framework that was used … is to my eye a sound analytic process and the underlying economics of that analysis are … consistent with our assessment in general of openness on the UK economy.
The City of London could also be hit in the event of a vote to leave the European Union, Carney warned. Membership of the EU "undoubtedly reinforces" London's position as the "pre-eminent financial centre", Carney said, as he argued that leaving "makes it less likely that London would retain its position … I'm not sure the adjective 'pre-eminent' would apply". He insisted, however, that everything depended on the terms of a post-vote renegotiation.
Carney said that many negative impacts of the referendum were already beginning to feed through to the economy, including:
Depreciation in sterling
Sharp spike in “uncertainty” by 1.5 standard deviations as measured on the Bank’s own indicator “which on past relationships would be associated with a marked reduction of the rate of GDP growth.”
A fall in commercial property transactions of 40 per cent – 60 per cent in London