Bank of England Governor Mark Carney hit back at critics of the bank’s analysis of the impact of Brexit, saying some of it had been “entirely unfair” and that the bank had drawn on nearly 200 experts to compile the report.
“There’s no exam crisis,” Mr. Carney told the House of Commons Treasury committee on Tuesday. “We didn’t just stay up all night and write a letter to the Treasury committee. You asked us for something that we had, and we brought it and we gave it to you.”
Mr. Carney faced a flurry of criticism last week from many hard-Brexit backers after the bank issued a report that concluded the United Kingdom’s economy could shrink by 8 per cent if the country left the European Union in March without any agreement on future economic relations. The report added that under that scenario house prices would fall 30 per cent, unemployment would jump to 7.5 per cent and the value of the pound would fall by 25 per cent. Several hard-Brexit MPs, who want the U.K. to cut almost all ties with the EU and then negotiate a trade deal, argued Mr. Carney was being far too extreme and that he was trying to undermine Brexit. Tory MP Jacob Rees-Mogg called Mr. Carney “a second-tier Canadian politician” who failed to get a job at home while other MPs accused the governor of tarnishing the bank’s reputation and politicizing it. Some notable economists, including Nobel Prize winner Paul Krugman, also weighed in and challenged the bank’s outlook, calling it unrealistic.
On Tuesday, Mr. Carney said some of the criticism had been “entirely unfair.” He noted that the committee requested the report and said the bank had been doing the analysis for months, drawing on 20 senior economists and 150 professionals from across the bank. He added that the analysis “was not what we think is most likely to happen. It is a depiction of what could happen.” And he noted that even in the extreme scenario, the U.K. financial system would remain sound. When asked if some of the media had been unfair to him and the report, Mr. Carney replied, “This country has a varied and vibrant media … that’s life.”
During the hearing, Mr. Carney got some support from Labour MP John Mann, who said Mr. Rees-Mogg had been “contemptuous of Parliament in suggesting that you weren’t being straightforward with this committee.” Mr. Mann also thanked Mr. Carney for the analysis.
Under questioning from MPs, Mr. Carney said that under virtually every Brexit scenario food prices would climb between 6 per cent and 10 per cent because of a drop in the value of sterling and likely tariff and non-tariff barriers imposed by the EU. He noted that the U.K. imports about half of its food needs, mainly from EU countries.
Mr. Carney and other bank officials were also questioned at length about the impact of Brexit on the U.K.’s financial sector, which employs around one million people across the country. He said that after Brexit, the financial sector is likely to lose some if not all passporting privileges, which allow U.K.-based companies to sell products across EU member states without restrictions. In an extreme case that could cost the U.K. industry up to 75,000 jobs, although at present the bank expects around 4,000 jobs to move out of the country when the U.K. leaves the EU. The U.K. and EU are also expected to move toward equivalence in financial regulations, meaning both sides would keep their rules largely aligned, but Mr. Carney said that could still pose challenges depending on how close such an alignment would be.
Another report released Tuesday found that a majority of 369 businesses surveyed by the Bank of England had not made any changes to their business plans in preparation for Brexit. “Just under a third of companies have already made some change to their plans,” the report added. The survey also found that the companies expected output to fall by between 2.5 per cent and 6.9 per cent over the next twelve months “in a ‘no‐deal and no transition’ Brexit scenario, but to rise by between 0.8 per cent and 2.7 per cent if a deal and transition period are agreed.”