While Mr Carney has spent months trying to avoid the political battle, a task Treasury Committee chair Andrew Tyrie compared to bomb disposal, some members of the committee said BOE statements including an October report and a letter published yesterday supported the government’s bid to keep the UK in the bloc. They questioned whether the central bank had overstated the positives.
“The language we’ve used in the report, the language we use in the letter, is careful,” Mr Carney told the committee. “To state the obvious, economic questions are important questions in terms of the broader decision the people of the UK have to make.”
The opening of the hearing on the economic and financial costs and benefits of EU membership was dominated by a testy exchange between Mr Carney and Tory MP Jacob Rees-Mogg.
“You are coming out with the standard pro-European Union group” lines, Mr Rees-Mogg told the governor. “It is beneath the dignity of the BoE to be making speculative pro-EU statements.”
“I’m not going to let that stand,” Mr Carney said. He defended the BoE’s independent stance by saying economic issues are not the only consideration and the central bank will not make any recommendation on the topic. Later, when Mr Rees-Mogg said Mr Carney wasn’t upholding the BoE’s “Olympian detachment” from politics, Mr Carney accused him of “selective memory” in relation to his testimony.
While Mr Carney stopped short of providing a detailed assessment yesterday, he said a ‘Brexit’ would probably weaken the pound, push up yields, and undermine investment. It’s also “without question” some financial-services companies could relocate from London, he said.
Labour MP John Mann asked if the BoE’s report was too focused on the virtues of membership, a suggestion the governor rejected.
“We do not take openness as an unalloyed good,” Mr Carney said. While openness contributes to dynamism, trade, and foreign direct investment, it also makes the economy “more exposed to shocks.”
While the BoE hasn’t given details of its contingency planning in the event of a Brexit, it said on Monday it will make extra liquidity available to banks in the run-up to the referendum.
Mr Carney said a vote to leave could create forces on inflation in both directions, but the central bank would be able to maintain price stability whatever the outcome.
“There could be lower levels of activity because of the degree of uncertainty that could affect investment and household spending,” he said. “On the converse, there could be movements in the exchange rate which would push up on inflation through normal exchange-rate pass-through, and the bank would have to take an assessment of those forces and their likely persistence.”
Deputy governor Jon Cunliffe told MPs that prime minister David Cameron’s deal to reform the relationship with the EU was “very significant and very material.” The governor denied his comments were influenced by Mr Cameron or anyone in government.
“We were not leaned on by anyone,” he said. “It would not make any difference if they tried.”