Bank of England governor Mark Carney says that the fall in the pound following the UK’s vote to leave the European Union was “a
s obvious as anything I’ve ever seen” and that if he had ignored that fall, the credibility of both himself and the Bank of England may have been at risk.
Accused of being too pessimistic in the immediate aftermath of the vote, Carney responded that “denying something as obvious as I’ve ever seen in the foreign exchange markets is not a good way to manage one’s reputation.”
Speaking in front of the Parliamentary Treasury Select Committee (TSC), the governor took questions from MPs on a range of topics, largely focused on the Bank of England’s response to the decision to leave the EU, and the aftermath of the vote.
During the hearing, Carney was told that he faced accusations that he had “over-egged” warnings about the negative economic impact of the referendum prior to the vote, and then essentially tried to justify these warnings in the aftermath of the vote.
He was asked by pro-Brexit Tory MP Jacob Rees-Mogg how he felt about his pre-referendum predictions. “I’m absolutely serene about the comments made both by the monetary policy committee and the financial policy committee. The market events, the liquidity pressures that were met because of the contingency measures that were taken absolutely validated the steps that we and other central banks took,” the governor responded.
Rees-Mogg has been probably the staunchest critic of governor Carney during 2016, accusing him of “fundamentally undermining” the impartiality of the Bank of England, and of “making speculative pro-EU statements” that were “beneath the dignity of the BOE.” He continued his assault on Carney at the beginning of the hearing, asking the first questions of the governor.
At one point during the hearing, TSC chairman Andrew Tyrie accused Carney of holding a “gun to the head” of chancellor Philip Hammond when asking the chancellor to grant the Bank of England an indemnity approving of the term funding scheme introduced by the bank at the beginning of August, arguing that Hammond had virtually no choice but to grant the indemnity. Carney firmly denied that suggestion.
The governor went on to argue that the impacts of the Bank of England’s unprecedented monetary stimulus package in August, which included a base interest rate cut to just 0.25%, and a new programme of quantitative easing, had helped the economy weather the post-referendum hit to the economy, and make the prospect of a technical recession much less likely, describing the package as “timely and comprehensive” — a phrase he used extensively on August 4, when the measures were announced.
Carney also said he believed the “contingency measures” put in place by the BoE helped to make the blow from the vote less significant, and that the measures will “help make the exit from the EU a success as quickly as possible.”
“The fact is, this financial system, under the supervision of the Bank of England, sailed through what was a surprise to the vast majority of financial market participants,” Carney added.
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