The governor of the Bank of England said to MPs on Wednesday that the Bank’s Financial Policy Committee had a ‘statutory obligation’ to make assessments of how UK financial and economic stability would be affected by a decision to leave the European Union, ahead of the referendum held last month.
In March, Carney came under fire from Treasury Select Committee member Jacob Rees-Mogg for making speculative comments about the benefit of EU membership.
Questioning Carney again on Wednesday, Rees-Mogg accused the Bank governor of ‘waxing lyrical’ on the benefits of staying in the European Union, adding that it was Carney’s political opinion rather that economic judgement.
Carney rebuffed Rees-Mogg claims, explaining that the Bank of England had ensured that political ‘purdah’ was observed when required, with the sole exception of the publication of the Monetary Policy Committee’s (MPC) meeting minutes.
“It’s not a political opinion, it is an economic opinion, it is a judgement based on analysis,” he said.
“The very serious issues, which all of you as parliamentarians will address in the coming years, are what aspects of that relationship [between the UK and EU] should be retained, altered or adjusted. One of the considerations you, I’m certain, will take into account is the net impact of those changes on economic and financial stability on the UK. So this relationship clearly is relevant to economic and financial stability.”
In the run up to the EU referendum, Osborne suggested that UK consumers would be left poorer in the event of a Brexit, while experiencing a hike in mortgage costs. Since the vote, mortgage rates have generally remained low, with a handful of lenders increasing rates on their tracker deals and some pulling products from higher loan-to-value ranges.
When questioned how mortgage rates will respond to the UK’s exit from the EU in the medium term, Donald Kohn, an external member of the FPC, said banks would be keeping a close eye on the market before they returned to ‘aggressive lending’, particularly in the buy-to-let market.
Sir Jon Cunliffe, deputy governor of financial stability at the Bank of England, added that banks’ economic position following the referendum was different to that observed in the 2008/09 financial crisis.
“What you’re seeing now is concerns about banks’ profitability and returns not about their robustness and resilience; which is why their share price can drop but the creditworthiness and solvency of banks is not in question and the debt spread does not increase.”