Wednesday, 9 March 2016

Is the BoE neutral?

Mark Carney: Brexit 'biggest domestic risk' to stability.

Mark Carney has fended off accusations that he has compromised his political impartiality after warning that Brexit is the “biggest domestic risk” to the UK’s financial stability. Really?

Mark Carney repeatedly says the BoE [Bank of England] is not under pressure from Number 10 however the public can see by his remarks which side the BoE is on, which is disappointing as a Canadian most people would be surprised at his intervention.

The Bank of England has made a series of interventions today which has angered those campaigning for a Leave vote in June’s referendum which is hardly surprising as the BoE should not sway for one side or the other.

In a letter to MPs, Mr Carney restated his view that membership of the European Union “reinforces the dynamism of the UK economy”. The Bank also announced last night that it was preparing “contingency plans” to supply billions of pounds of liquidity to the UK’s banking sector if there is a Leave vote, nothing wrong with that as it is classed as a contingency plan, it does not side with one or the other.

Mr Carney appeared before MPs yesterday, when he sparred with pro-Brexit MPs, particularly Conservative eurosceptic Jacob Rees-Mogg. “You are getting into political partisanship, removing yourself from your Olympian detachment,” Mr Rees-Mogg told the Governor. Mr Carney hit back, accusing the MP of having a “selective memory” in picking and choosing his evidence for such a claim. “I’m not going to let that stand,” Mr Carney said after Mr Rees-Mogg said it was “beneath the dignity of the Bank of England to make speculative statements” and warned Mr Carney he was “doing your reputation harm”.

Quizzed by the Treasury Committee today, Mr Carney said Brexit was the “biggest domestic risk to financial stability” because it could have knock-on effects on the current account, housing and euro area. He added: “I’m saying it is the biggest domestic risk to financial stability. In my judgement, the global risk, including from China, are bigger than the domestic risk.”

Committee chairman Andrew Tyrie invited him to echo the comments of the G20, which said leaving the EU could have a “profound economic shock”, but Mr Carney declined. “It is a material financial stability risk. If you’re referring to communiqué language of the G20, that is a different phrase that is the view of the collective countries of the G20.” Greater instability “could be associated, normally would be associated, with poorer economic outcomes,”.

Should the BoE promote one side over the other or suggest routes for both sides depending on the outcome which will be decided by people voting on 23--Jun-2016?

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