BOE has responsibility to highlight Brexit risk, says Governor Carney

Bloomberg

Bank of England Governor Mark Carney once again defended his obligation to assess economic risks related to Britain’s upcoming referendum on EU membership.
The BOE has “a responsibility under our remit to report not just the current trade-off that may hold in terms of returning inflation to target in a sustainable manner, but the risks, the principle risks around that trade-off,” Carney told lawmakers on Parliament’s Treasury Committee in London. The referendum decision could “materially change the trade-off.”
Deputy Governor Ben Broadbent and fellow policy makers Martin Weale and GertjanVlieghe appeared at the hearing alongside Carney. They all agreed a so-called Brexit may slow growth and cause a drop in sterling that may boost inflationary pressures.
The officials are speaking less than two weeks after the central bank intensified its warnings about the economic damage a Brexit could wreak, with Carney saying a vote to leave the European Union may spark a recession. That’s likely to rile the pro-Leave members of the committee, including Conservative lawmaker Jacob Rees-Mogg, who has called for the governor to be fired for acting politically.

Unprecedented Intervention
Focus on Carney intensified earlier this month when the BOE published its quarterly Inflation Report, which included the strongest warning yet that a vote to leave the EU would harm the
economy.
The BOE’s unprecedented intervention drew a barrage of comments, with Prime Minister David Cameron saying the central bank was right to warn about the potential outcomes, while pro-Brexit campaigners, like Energy Minister Andrea Leadsom, accused Carney of overreaching his mandate and invoking financial instability.
Treasury Committee Chairman Andrew Tyrie probed officials to see if there was any dissent in making the BOE’s judgment, with Broadbent, Weale, and Vlieghe all agreeing that the referendum’s most likely impacts would be those set out in the inflation report.
Carney also said the Financial Policy Committee is united in thinking Brexit is the most significant domestic downside risk. FPC officials Donald Kohn, Martin Taylor and Richard Sharp are due to speak later Tuesday.
A key question for policy makers is whether the U.K.’s recent slowdown can be attributed to uncertainty surrounding the June 23 vote or whether it would be occurring anyway. The BOE cut its own growth projections this month, and Vlieghe said last week that the economy may require more stimulus even in the event of a vote to remain in the EU.