News

Bank of England warns of Brexit risks

Bank of England (BoE) Governor, Mark Carney, has said Britain’s membership of the EU has reinforced the “dynamism of the UK economy” [1].

After a meeting with other European Union leaders last month, David Cameron asked the Bank to set out the facts about membership.

Following the Bank making contingency plans for Brexit at the end of February, in a pre-hearing letter to the Treasury Committee, Carney said that the European relationship has helped the UK to grow, but emphasised that the Bank was not taking sides in the EU referendum.

While the BoE is reluctant to speak out on a political topic, it falls squarely within the Bank’s remit to assess how the vote will affect Britain’s economy, thus the outlook for monetary policy and the City institutions it regulates.

To date, Carney has made two main points: that membership of a reformed EU was in the UK’s interest, and that Brexit might increase financial stability risks [2].

Barclays and the Royal Bank of Scotland have both raised concerns over an exit from the EU.

Leading up to the referendum vote on 23 June, the BoE will stage three auctions allowing banks and building societies to access liquidity in the form of loans [3].

If the vote is in favour of Brexit, Carney told a parliamentary committee “there could be lower levels of activity because of the degree of uncertainty that could affect investment and household spending” [4].

Although Carney also said there were risks to remaining in the EU, due to the greater integration, he praised Cameron’s deal, saying: “The settlement addresses the issues the Bank identified as being important, given the likely need for further integration of the euro area, to maintaining its ability to achieve its objectives” [4].

[1] BBC News. ‘Bank of England Governor says EU has helped UK economy’. bbc.co.uk
[2] Financial Times. ‘Where does the Bank of England stand on Brexit?’. next.ft.com
[3] Citywire. ‘Bank of England pledges extra funds to counter Brexit fears’. citywire.co.uk
[4] Reuters UK. ‘Bank of England warns of Brexit risks, provoking ire of Eurosceptics’. uk.reuters.com