Belfast Telegraph

UK Website Of The Year

Treasury analysis on Brexit economic impact 'sound': Mark Carney

Published 19/04/2016

Mark Carney also warned that uncertainty over the referendum is starting to hamper economic activity
Mark Carney also warned that uncertainty over the referendum is starting to hamper economic activity

Bank of England governor Mark Carney said Treasury analysis that the UK economy would shrink if Britain left the European Union was based on a "sound" analytical process.

Mr Carney told members of the economic affairs committee at the House of Lords that he did not dispute the analytical framework used for the report, which concluded that the UK economy would be 6% smaller if it left the EU than it would otherwise be in 2030.

This came as he reinforced recent warnings from the Monetary Policy Committee (MPC) that uncertainty around the EU referendum was beginning to hamper economic activity.

He told the committee that risks posed by the EU referendum had "the potential to reinforce existing vulnerabilities in relation to financial stability", which include the UK's high current account deficit, the property market and market liquidity.

He added: "Some elements of these risks may be beginning to manifest."

He reaffirmed the MPC's position that it had seen " some softening in growth during the first half of 2016" due to uncertainty surrounding Britain's vote on the EU.

He said that Brexit could also trigger an extended period of uncertainty for the economic outlook which could harm the "prospects for export growth".

He said this uncertainty may push down on demand in the short-run.

But Mr Carney defended his position from critics who accused him of venturing into politics when assessing the economic impact of the referendum vote.

He said: "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."

It comes after Mr Carney previously pinpointed the threats from the EU referendum as "the most significant near-term domestic risks to financial stability".

Mr Carney said it was not for the Bank to answer questions about the analytical detail in the Treasury report on the long-term impact of Britain exiting the EU.

But he said framework that was used for the study was based on a "sound analytic process".

He also warned over the vulnerability in the UK economy caused by the size of Britain's current account deficit.

The Office for National Statistics reported in March that the gap had ballooned to £32.7 billion or 7% of gross domestic product (GDP) in the fourth quarter.

He added: "I think it is safe to say it's running at a rate probably around 5% if you strip various things out and have a smooth level, and that is remarkably high for a large advanced economy. That is the challenge."

Mr Carney said it was "less likely" that London would be able to maintain its dominant financial position after Brexit.

"It would depend on the relationship that was negotiated. It makes it less likely that London would retain its position as it currently is. It would very much, as in many of these, depend on the negotiations."

The bank chief said London would no longer be pre-eminent if Britain withdrew from the EU.

"The prospects for the City of London are based on a variety of factors, and unquestionably this is the greatest pool of human capital in financial services, and there are tremendous advantages to that.

"Its position as the leading international financial centre is undoubtedly reinforced by its membership, the UK's membership of the European Union and the ease of access to the euro area that is afforded, but it is not solely based on that, so it would continue to, in a different form, and potentially to a different order of magnitude, in other words, smaller, but retaining a position of great importance, but I am not sure pre-eminent, the adjective pre-eminent, would necessarily apply," Mr Carney said.

Asked if he stood by comments that a Chinese downturn posed a bigger threat to the UK economy than the referendum, Mr Carney said: " I think in the immediate term the issues in China are considerable and it very much depends on how they are handled by the Chinese authorities."

Responding to claims big levels of migration forced down salaries , the governor said an increase of 150,000 in the workforce only had an impact of 0.1% on wages and inflation.

Read More

From Belfast Telegraph