Closed Brexit: The Bank of England’s take – live

Brexit live: UK heads to the polls
What does the Bank of England think about the risks – or opportunities – of a vote to leave the European Union? On Tuesday, its top officials will face a grilling from MPs on the Treasury Select Committee on the topic.

BoE officials have spent months trying not to be drawn into the issue but with two hours of questions ahead, govenor Mark Carney will be repeatedly put on the spot. The Treasury Select Committee is also sharply divided between committed outers and inners who will all be keen for material to support their campaign. Appearing are BoE governor Mark Carney and deputy governor for financial stability Jon Cunliffe.

Key points

  • Mr Carney says the BoE will not be making a recommendation as to which way to vote: “We will not be making, and nothing we say should be interpreted as making, any recommendation with respect to that decision.”
  • But in its written submission the BoE says that the settlement reached by David Cameron “addresses the issues the Bank identified as being important”.
  • BoE is not forecasting the impact of Brexit on either jobs or prices, Mr Carney says
  • There would “without question” be a loss of business in the City of London if the was to leave and can not negotiate mutual recognition to replace the current EU bank passport
  • Mr Carney refutes any suggestion he has been leaned on by the government to give a pro-EU view. “My signature is on the letter, these are my views”.
  • In a sharp exchange, Eurosceptic MP Jacob Rees-Mogg accuses Mr Carney of pushing pro-EU arguments. Mr Carney says he will not let that stand.

By Chris Giles, Economics Editor and Emily Cadman, Economics Reporter


So what are the key things to look out for in Mr Carney’s appearance? Take a look at our preview


It was always going to be a closely watching hearing, but the stakes were raised last night when the BoE announced that it plans liquidity auctions to protect banks in event of Brexit read more


Session starting a little late. Not surprising as the Treasury Committee is deeply split on the subject of Brexit


So while we are waiting, here is a recap of what to look out for:

The committee and BoE will publish a short written submission at the start of the hearing. Given Mr Carney has previously said membership of a reformed EU was in the UK’s interest and that Brexit might increase financial stability risks, we can probably expect the following three headlines.

1. A report on how David Cameron’s renegotiation has affected countries outside the eurozone

The BoE previously expressed concern that there must be “clear principles to safeguard the interests of non euro-area member states”. This was an important area of Mr Cameron’s negotiation and principles have been set out, but not been tested in anger. It is likely Mr Carney will say this test has been met

2. A statement on whether the BoE thinks it can fulfil its statutory mandate to achieve monetary and financial stability

There is no doubt on monetary stability as the central bank has already declared that passed. It would be explosive for Mr Carney to express doubts that he could do his job because of EU meddling, but Eurosceptic members of the committee, including Andrew Tyrie, the chairman, are likely to press him hard on this point.

3. An assessment of whether EU membership is broadly in Britain’s national interest

The BoE is not in the business of taking sides, but is likely to repeat that EU membership has been good for economic openness, dynamism and therefore prosperity. It said this in October. It is also likely to highlight the financial stability risks of Brexit. Mr Carney has already done this. It is in these two areas, the remain side will try to push the governor to be as definitive as possible.


While we are all waiting for Mark Carney to start, why not read Janan Ganesh’s excellent column on the lack of preparation for the Brexit campaign from those supporting Brexit Janan Ganesh column


Here we go. Session about to start


And we are up. The first question from chair Andrew Tyrie is to explain “clearly and succinctly” what the scope of the BoE’s role is in the public debate?

“Our comments around these issues…are limited to how that relationship impacts” the BoE’s core monetary and financial stability remits Mr Carney says.

It does not provide a comprehensive assessment of the economic questions surrounding the debate.

“Nothing we say should be interpreted as making any recommendation” on which way to vote, Mr Carney says


The BoE has published a submission on the renegotiation. Here is the key concluding paragraph

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. In line with a main conclusion of the Bank Report, the Settlement explicitly recognises the needs of the UK to supervise its financial stability, while not impeding the implementation of necessary, further integration amongst members of the euro area. It makes clear that the UK retains responsibility for supervising its financial stability, financial institutions and markets as well as maintaining responsibility for the resolution of failed financial institutions within its jurisdiction.

At the same time, it acknowledges the existing powers of the Union to take action that is necessary to respond to threats to financial stability. The Settlement recognises that EU financial services legislation may need to be conceived in a more uniform way for Banking Union member states than for member states like the UK that are not participating. It recognises that there is more than one currency in the EU and makes a legally binding commitment to ensure nondiscrimination in the single market on the basis of currency. Finally, it makes a series of commitments to improve the competitiveness of the EU economy—commitments, to the extent they are fulfilled, that would reinforce the positive impact of EU membership on the Bank’s secondary objectives.


Second question from another euro-sceptic Jacob Rees-Mogg on the risks of remaining within the EU.

Especially on whether the prospect of a financial transaction tax is a risk.

Mr Carney gives a long answer but conclusion is it isn’t a major risk to financial stability


Rees-Mogg is pushing ahead with this line of questioning. Essentially trying to get Carney on record with any comments that will support the Euro-sceptic case – in particular any risks that the govenor sees from staying within the EU.

Carney trying not to be drawn. Repeatedly stressing that he only wants to comment on things within the BoE’s remit


Full text of the BoE submission is published here: BoE submission


Carney still being questioned by the Eurosceptic MP Jacob Rees-Mogg who complains that the UK will not be able to stop further integration of the eurozone.

Carney disagrees, saying that further integration of the eurozone “is absolutely in UK’s interests” and in the interests of the “financial stability of the UK” and adds that the settlement David Cameron achieved clear rules for the countries not in the eurozone.


Now onto the question of whether the government has been leaning on the BoE.

Mr Carney says he does have conversations with the PM about the most important economic issues facing the country.

He has had conversations with the PM about the issues at stake in the negotiations and these were “entirely consistent” with what he has said in public.

“Our concerns are reflected in the settlement”


The rest of the letter from Carney to the committee letter is a repeat of the BoE’s view that the EU makes Britain’s economy more open, dynamic and prosperous. It then discusses Mr Cameron’s settlement in detail, concluding that the prime minister struck a good deal


Rees Mogg points out that the BoE says the EU improved the dynamism of the UK economy, but the growth rate of the UK slowed in the years since it joined the EEC in 1973.

Carney responds that all advanced economies witnessed a slowdown after the 1960s and Britain’s relative performance improved significantly over two periods, first in the 1970s after joining and second in the early 1990s after the completion of the European single market.

The historical facts are discussed here What has the EU done for the UK


In a sign of how unhappy Euro-sceptics are with the BoE so far Rees-Morgan accuses Mr Carney of repeating the arguments of the pro-EU group.

“It is speculative and beneath the dignity of the Bank of England” he claims.

Mr Carney is not happy – saying he won’t let that stand – and goes on to give a long answer about why he is confident of his economic grounding.


Anyone who wants to read the detailed BoE arguments on the economic history should look at its (rather good) paper from October. BoE report


We are back to the chair Mr Tyrie now, who is again pushing Mr Carney to talk about the risks of the EU to the UK.

Mr Carney says that the BoE “does not shy away from these issues” and flags that the BoE has repeatedly talked about the risks from the Euroarea.


Andrew Tyrie turns to Sir Jon Cunliffe, deputy governor for financial stability, to ask whether he agrees with the governor that Cameron’s deal ensures the BoE’s has the tools to achieve financial stability.

After a long answer going back to the principles the BoE cares about, Sir Jon says it does, but will be more fully realised one the safeguards for non-euro countries is put into the next EU treaty.


Amid lots of technical detailed questioning about the exact rights the UK has, Twitter knows that it thinks is more important so far:

https://twitter.com/fletcherr/status/707144949188464642


The markets are so far unmoved by anything they’ve heard so far. Sterling remaining broadly flat on the day.


We are now into a debate about safeguards.

Mr Tyrie, who also supports Brexit, is needling Sir Jon, pointing out that many financial regulatory decisions will be taken by the EU council of ministers in a committee called ECOFIN. In this committee the eurozone has a majority and could outvote Britain. He is trying to suggest Britain is vulnerable in this committee to being outvoted. Speaking about the safeguard mechanism, he says “I wouldn’t want to rely on it on a dark night”

Sir Jon bats back, saying the safeguards for countries outside the eurozone is “a real commitment” and “not possible for ECOFIN to ignore”. Sir Jon says he is “pretty sure” that if ECOFIN tried to outvote Britain, the prime minister could take the agreement to a higher level and complain to the president of the Council of Ministers. “I actually think it is pretty powerful”.


Nearly 45 minutes in, we are yet to have a question from any of the pro-Europeans on the committee


Our political editor is also watching the testimony closely

https://twitter.com/GeorgeWParker/status/707146857231851520


Tyrie is still questioning Mr Cunliffe on risks to the UK. In particular, whether the UK is “vulnerable” in the future if there was a drop in the number of non-Euro countries with Europe. Secondly, about the “ratchet” effect of increased regulations.


Bad for “Remain”: The BoE says it won’t make a recommendation to voters how to cast their ballots in the referendum.

Bad for “Leave”: Everything else the BoE says


Labour MP John Mann has moved onto EU and jobs, prices and wages.

Carney says the BoE has not undertaken a study on these and it does not intend to do so. To some incredulity, he says these issues are outside the BoE’s remit.


We are now onto technology. Hasn’t the UK (and Europe) fallen behind the rest of the world asks Mr Mann? This is all about whether the BoE is correct to emphasis the benefits of openness and the single market.


And there is a lot of speaking at cross purposes. Mr Mann complains that the EU is not at the forefront of technology. Mr Carney responds that the BoE thinks EU contributes to improving technology.


The scene today:


So far, there is no killer quote that either side will be able to seize on. The MPs in general are focusing on details of the settlement, rather than big picture assessments.


Chris Philp MP is questioning now – He is a Remain supporter – reluctantly

https://twitter.com/chrisphilp_mp/status/702461507578294272


“We don’t dictate but we have substantial influence over European regulation” Mr Carney says, when asked whether the UK is currently a net taker of regulation

“There are significant examples” of EU regulation which reflect thinking and approach that was developed in London, Mr Carney says


Carney muses that he currently thinks “most” EU prudential regulations is of high standard and adds, if we were to be outside, the question is how much influence the UK would have.

“There would be an impact” in terms of institutions moving if UK votes to leave.

There would “without question” be a loss of business in the City of London in the event of a vote to leave without a mutual recognition treaty to replace the current passporting regime, Mr Carney says.

This is what a number of city institutions have been warning – both publicly and privately


Here is a longer quote from Carney on the benefits of passporting:

“There is a reason why a substantial proportion, more global banks, more internationally active banks are headquartered in London than any other European country, or all other European countries combined. That’s partly because of the cluster of expertise that is here but also, in many cases, and I have had numerous conversations with CEOs who affirm this, that is because of the passporting ability of this economy in terms of the activities.”


Sir Jon is adding to concerns about the City of London’s position outside the EU. As a seasoned diplomat, he says it would be “a very big negotiating ask” to be still part of the European single market for financial services and have influence in setting the rules.


We are now onto financial regulation, and how much comes from the EU and how much international standards.

Mr Carney stresses the UK’s current influence: “The UK has influenced the EU, which has influenced international best practice”


Outside the EU, what financial regulations could or should be jettisoned?

Carney highlights as “important” the desire to take “a more proportionate approach” to Basel 3 regarding capital requirements for domestic focused institutions.

Outside the EU, compliance costs “could go down” for domestically focused firms, Mr Carney says.

But, for those working in other EU countries compliance costs “would go up”.

This gets to the heart of one of the reason why there is a split between many small businesses – which typically do not trade internationally as much – and large businesses in attitudes to Brexit.


Here is our business editor Sarah Gordon’s look at those companies which relish life outside the EU.

Most dislike regulation while bigger groups worry about investment.


Now it’s the Remain MPs turn to question Mr Carney.

Fewer arguments. The governor accepts that any statistics on the costs of EU regulations are meaningless without knowing what regulations a British government would impose if Britain left the EU.


The Scottish nationalists now have their turn, trying to goad Mr Carney into saying financial stability would be compromised by leaving the EU.

Mr Carney responds with a straight bat about the long term, but repeats his concerns about financial stability in the shorter term. He says:

In the short term, the transition could bring some challenges to financial stability


There are quite a lot of MPs to get through today, meaning it is quite likely that the session will last beyond the scheduled two hours. Here is how the TSC is made up (in alphabetical order).

Mr Steve Baker – Conservative
Mark Garnier – Conservative
Helen Goodman – Labour
Stephen Hammond – Conservative
George Kerevan – Scottish National Party
John Mann – Labour
Chris Philp – Conservative
Mr Jacob Rees-Mogg – Conservative
Rachel Reeves – Labour
Wes Streeting – Labour
Mr Andrew Tyrie (Chair) – Conservative



Membership of the EU “magnifies” the UK’s influence over global regulation, Carney says. That will be music to the ears of the remain campaigners who have argued that exit would not necessarily mean a bonfire of regulation.


The questioning moves to why the BoE decided to announce it was moving to protect banks with offers of unlimited funds in the event of a Brexit vote. FT Story

Sir Jon says it was important to let banks know they could gain funds if they needed them. Implicitly denying he was part of Project Fear, he said the BoE had learnt the lessons from keeping similar plans quiet in the 2014 Scottish referendum.

“If you leave it late [to announce contingency plans] then it can be difficult to do it because you can create instability by the announcement itself”.


Labour MP Rachel Reeves tries to press Carney on precisely which institutions are thinking about the possibility of leaving London. He brickbats, saying that is a question for the firms as to whether they want to speak up.


And onto Sterling: how much of its weakness and volatility can be assigned to Brexit risks?

He accepts concerns about the referendum have been a factor, but says it is not the only one.

Mr Carney notes that he is also watching the gilt markets.


Now onto the current account deficit. This is one of the big issues that keeps economists awake at night.

Last year, the UK posted the second-largest postwar deficit on its current account, implying the country needed to borrow or sell assets worth almost 5 per cent of national income to fund this external imbalance.

Mr Carney suggests that foreign direct investment might fall if the UK leaves the EU. Warns that risk premium is likely to go up – i.e the UK will have to pay more to attract finance.

Further reading: UK current account worries awake from their slumber


Conservative MP Steve Baker returns to the issue about what conversations Mr Carney – and Jon Cunliffe – have had with government about the EU referendum.

Have staff in the government approached staff at the BoE?

Cunliffe says he has “great confidence” in the integrity at the staff of the BoE, but says “I can’t know what I don’t know” in terms of whether there has been contact.

Carney adds: “This letter [to the committee] was written by Jon and I”

“We are expressing views that are the views of the institution. We are not leaned on”

“My signature is on the letter, these are my views”


A long passage of questioning of Mr Cunliffe based on his experiences of being an EU negotiator on how long it will take the UK to get a renegotiation if it decides to leave.

Boils down to the key sentiment that “trade negotiations are generally slow moving” but you “can’t be categoric” about how the parties would approach things. Something for both camps there.


We are now on business investment – which saw an unexpected sharp fall recently.

Carney repeats that uncertainty could encourage firms to wait.


We are now two and half hours in. Tyrie says there will be just a few more questions for the govenor.

First – John Mann on the specifics of what banks might move abroad in the event of an exit.

Carny again rebuffs the question as “not appropriate” for him to reveal private conversations, but says locations under discussion would be Ireland or elsewhere on the continent. “It is for them to speak in public”.


Secondly, it is arch-eurosceptic Rees-Mogg again, who returns to his criticisms of the “tendency” of the government to be pro-European.

“You are getting into political partisanship” he says.

Unsurprisingly Mr Carney rebuffs it.

“With respect, what concerns me is your selective memory”.


“Any suggestion that contingency planning for an unprecedented event… that we would do that for any other reason that to support financial stability is entirely unfounded,” Mr Carney says.

Tyrie calls the session to order despite Rees-Mogg wanting to continue the exchange.


Carney is choosing his words very carefully now when asked about what the risk Brexit poses to financial stability in the UK.

“It has the potential… to amplify risks around the current account, potential risks around housing” he says.

“It is the biggest domestic risk to financial stability” Mr Carney says, but focuses also on the global risks – particularly on China.


Mr Carney asked whether the documentation today is intended to be the BoE’s last work on the issue.

“Yes,” he says.

“We have no intention of producing additional public documents”, Mr Carney says. Adding this was only produced in response to the committee’s express request.


And with that, we are done. So what have we learnt?

The BoE will not make a recommendation on which way to vote

But it has endorsed Mr Cameron’s negotiation as addressing the issues the BoE identifies as important

And Mr Carney has again warned that businesses may leave the City of London in the event of a ‘yes’ vote.

Thanks for reading. There will be a full story on FT.com shortly.