London Briefing: Mark Carney’s Brexit hero period evaporates

UK central bank governor rebuts claims of ‘phoney forecasts’ in favour of Remain

Britain’s central bank governor Mark Carney:  “If we view something as the biggest risk to financial stability we have an obligation to parliament and to the people of the UK to make that clear,” he told the UK treasury committee. Photograph:  PA Wire

Britain’s central bank governor Mark Carney: “If we view something as the biggest risk to financial stability we have an obligation to parliament and to the people of the UK to make that clear,” he told the UK treasury committee. Photograph: PA Wire

 

A week is a long time – in banking. Last week Britain’s central bank governor Mark Carney was hailed for stepping into the leadership vacuum left by squabbling politicians as he eased the post-referendum turmoil with calming words of reassurance for world markets.

The governor’s composure slipped somewhat at Westminster yesterday as he was subjected to robust questioning from MPs on the subject of the Bank of England’s independence in the run-up to the Brexit vote.

If the Canadian banker had expected recognition for his widely-applauded moves to ease the Brexit fallout over the past fortnight he was left sorely disappointed.

Treasury committee chairman Andrew Tyrie went for the jugular as soon as the session got under way, detailing a series of allegations made about Threadneedle Street’s “credibility and integrity as an institution” during the referendum campaign.

He detailed claims that the bank peddled “phoney forecasts” in a deliberate, politically-motivated attempt to frighten the public into voting to remain in the EU. If true, Tyrie said, the allegations pretty much marked an end to the independence the bank has enjoyed since 1997. He added: “It certainly can’t be recovered by this governor, and not regained by the Bank of England for many years.”

Carney resisted the temptation to point out that if he had tried to scare voters into supporting the Remain camp he had failed dismally. Instead he again insisted it was the bank’s duty to highlight risks.

Obligation

Carney has been quizzed before on his dealings with chancellor George Osborne ahead of the referendum, and was asked again on Tuesday about their relationship. He has admitted to having had “a series of conversations” with Osborne, and stuck to his line that politicians had sought to inform rather than influence him.

But MPs won a significant concession from the governor as he agreed to release notes of private conversations he had with Osborne ahead of the poll.

Carney gave his agreement extremely reluctantly, arguing that he wanted to preserve future “free-flowing” conversations between chancellor and governor. The committee agreed they would look at the notes privately, and for now they will not be published.

Some of the most heated exchanges came between the governor and Tory MP Jacob Rees-Mogg, one of his most persistent critics. A clearly irritated Carney said that those who called the bank’s independence into question “should consider their motivations and their judgements”.

Carney also allowed himself a pop at another critic, former chancellor Lord Lamont, who was at the head of the treasury when Britain crashed out of the European exchange rate mechanism on Black Wednesday in 1992. Although he didn’t name Lamont, Carney told the committee: “Things are different. We don’t keep things under wraps. We identify risks and respond to them. We don’t look to have exchange rate crises but exchange rate adjustments.” Ouch.

The governor didn’t look too bruised after the session – just as well as the markets are looking to him and the bank’s monetary policy committee for action tomorrow.

Sterling clawed its way above $1.32 yesterday – still an “adjustment” of more than 10 per cent on its pre-poll level – as markets welcomed the appearance of a second adult in the room, new prime minister Theresa May. (At the height of the referendum turmoil Carney had been hailed as “the only adult in the room”.)

Safe pair of hands

The relative stability for sterling is likely to be short-lived, however. Economists at HSBC have made forecasts for the currency based on the decision Carney and his monetary policy committee colleagues make tomorrow. If they decide to cut base rates by a quarter point from their current record low of 0.5 per cent to 0.25 per cent, then sterling would slide by 1 per cent, they suggest.

If there’s no change to rates the fall will be in the region of 1.5 per cent. If the committee opts for a half-point cut then the pound could drop by 3 per cent, HSBC says.

But if the decision is for a half-point cut and further quantitative easing, sterling could slide by another 5 per cent or more. That’s a pretty big adjustment. Fiona Walsh is business editor of theguardian.com

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