The governor is right to intervene in the debate over Europe
BREXITEERS are livid about comments made at a press conference on May 12th by Mark Carney, the governor of the Bank of England. He presented the bank’s latest inflation report, and then went on to concede that a vote to leave the European Union could “possibly” tip Britain into a “technical recession” (defined as two consecutive quarters of negative growth) and destabilise financial markets. Jacob Rees-Mogg, a Conservative MP and prominent Brexit campaigner, said that the governor “should be fired” for his comments.
The accusation against Mr Carney is that, by focusing on the problems associated with Brexit, he has taken a political position and thus compromised the bank’s independence. But this is to misunderstand how the Bank of England works. Every inflation report sets out the big risks facing the British economy—the usual suspects recently have been the euro crisis and China’s slowdown. The nine-member monetary-policy committee thinks the referendum is currently the biggest threat to financial stability (look at the currency markets and it is hard to disagree). Britain’s current-account deficit, at an all-time high of 7% of GDP, will be an obvious weakness if Britain votes Leave.
That logic also explains why Mr Carney did not weigh in so heavily in the run-up to the vote on Scottish independence, a seeming inconsistency for which even those voting Remain have rebuked him. Back then Mr Carney merely said that an independent Scotland could not share the pound. His intervention was minimal because Scottish independence was not a big risk to Britain’s overall economic outlook. As the minutes from the bank’s financial-policy committee in September 2014 show, the biggest problems in the event of a “yes” vote for independence would have been encountered by financial firms with headquarters in Scotland.
Leave campaigners also claim that by stressing the dangers of Brexit, Mr Carney has all but ensured economic turmoil if there is indeed a vote to Leave: Andrea Leadsom, another Conservative MP, said that Mr Carney’s words were “incredibly dangerous”. In fact, the opposite is true. Decades of evidence show that investors get most scared if they think central bankers have ignored risks, not when they are being transparent.
Mr Carney’s sincerity this time, however, is coloured by what has gone before. In October the bank published a report on the benefits of EU membership that “went beyond its remit”, says Tony Yates of Birmingham University, because it talked about topics—economic “dynamism” and “openness”—that do not pertain to monetary policy. To be on the safe side this time, the bank kept its discussion of the possible impact of Brexit to the bare minimum. It did not provide any quantitative estimates of the impact of a Leave vote on inflation or interest rates—forecasts that many Britons would like to see. Mr Carney’s job is to provide independent assessments of the risks to the British economy. Last week he said too little, not too much.
This article appeared in the Britain section of the print edition under the headline "He can, Carney"
