12 09 2016

Mark Carney defends Bank of England's warnings and response to Brexit vote

Contingency plans adopted by the Bank helped soften the Brexit impact, governor tells MPs.

The contingency plans adopted by the Bank of England (BoE) in the aftermath of the European Union referendum helped soften the blow of the pro-Brexit vote, Governor Mark Carney said.

Speaking in front of a Treasury committee on Wednesday (7 September), Carney explained the central bank's actions have had a "notable impact" on asset prices and the contingency plans put the BoE in a position where it "could help economy adjust from the fallout of the vote".
"The Bank and the Monetary Policy Committee (MPC) helped to support, cushion and help the economy to adjust, as the pro-Brexit result was a surprise to financial markets," he added.
Along with other BoE policymakers, in the lead-up to the referendum, Carney was vocal in warning of the dangers of an economic slowdown related to a vote in favour of leaving the EU and he told the committee he was "absolutely serene" about the risks that were outlined.
"In light of all the events since the referendum, I'm absolutely serene about the comments made both by the monetary policy committee and the financial policy committee," he said.
"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."
Committee chairman Andrew Tyrie suggested the BoE had "over-egged the warnings about the economic effects of Brexit", apart from the sharp devaluation of the pound, and that Carney had "encouraged an overreaction after it".
However, the BoE governor reiterated the belief the MPC had acted diligently given the circumstances it faced before and after the vote. "In terms of the broad swath of data and how the economy has responded [...] we feel confident in the orientation and judgment of the committee," he said.
Carney added that the Bank could have lost market credibility had it ignored the drastic drop in the sterling. The pound suffered the third-biggest one-day decline of any currency in the world over the past 40 years on 24 June, after Britain voted to leave the EU.
The UK currency tumbled to its lowest level since 1975 after the Leave campaign secured a 52% to 48% win in the EU referendum, which subsequently sent global markets nosediving. The slump was second only to the that caused by the Swiss central bank's unexpected decision to lift Switzerland's currency peg in January 2015 and by the turmoil that hit the Japanese yen during the 1973 oil crisis.
Carney said the devaluation of the pound was "as big as anything I've ever seen in the foreign exchange markets".