The governor of the Bank of England has clashed with Eurosceptics after he issued a stark warning yesterday that leaving the EU is the “biggest domestic risk” Britain faces.
Giving evidence to MPs, Mark Carney said so-called Brexit could trigger a prolonged period of financial instability and have serious consequences for the housing market and City of London.
But he was rebuked by Treasury Select Committee member Jacob Rees-Mogg, who branded his intervention “speculative” and “beneath the dignity” of his office. Culture Secretary John Whittingdale has also cautioned that predictions of “Armageddon” if the UK were to leave could become self-fulfilling.
Under tough questioning during a three-hour session, Mr Carney stressed that the Bank was not making any formal recommendation on how people should vote in the 23 June referendum. He denied that he had been pushed by Downing Street into making a grim assessment of the potential fallout. Mr Carney said the UK leaving was not currently the “median” expectation of financial players, and highlighted effects such as a drop in the value of the pound.
“The issue is the biggest domestic risk to financial stability, because in part of the issues around uncertainty,” Mr Carney told the committee.
“But also because it has the potential – depending on how it is prosecuted and how these issues can be addressed – to amplify the risks around the current account as has been discussed, potential risks around housing, potential risks around market function which we are trying to mitigate. And also associated risks with respect to the euro area.
“It is the biggest domestic risk to financial stability. I would say that in my judgment the global risks, including from China, are bigger than the domestic risks.”
After the Bank announced it would give financial organisations access to more liquidity during the referendum period, Mr Carney pledged to “do everything in our power” to keep the markets calm. But he warned that it was not possible to provide a “blanket assurance” that there would not be short-term turbulence,.
Asked if uncertainties might lead companies to relocate business activities away from the City in the event of Brexit, Mr Carney said: “One would expect some activity to move.
“Certainly, there is a logic to that. I would say a number of institutions are contingency planning for that possibility – major institutions, foreign headquartered, which have their European headquarters here.”