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The Bank of England fought back on Thursday after supporters of the campaign to leave the EU stepped up attempts to undermine the bank’s warnings on the economic consequences of Brexit.
Bernard Jenkin, a Conservative MP and a Vote Leave board member, attempted to silence Mark Carney, the BoE governor, this week by warning him he was “prohibited from making any public comment, or doing anything, which could be construed as taking part in the referendum debate”, in a letter sent on Monday. On Thursday he added that the governor “needs to be very careful what he says”.
Matthew Elliott, chief executive of Vote Leave, tried to undermine Mr Carney further by saying that “staying in the EU is good for investment bankers like Mark Carney and his chums” — referring to the 13 years Mr Carney spent working for Goldman Sachs.
The bank and its governor were unperturbed, issuing a letter of their own on Thursday rebutting Mr Jenkin’s “numerous and substantial misconceptions” and publishing minutes of the latest Monetary Policy Committee meeting, in which the committee ramped up warnings on the potential impact of a British exit from the EU on global markets.
This is the first time since the central bank was granted independence in 1997 that it has come under sustained criticism. The row highlights the difficulty of repairing relations between a large part of the Conservative political establishment and many of Britain’s institutions after next week’s referendum.
The MPC has significantly increased its assessment of the risks posed by a British exit to global financial markets, saying in its latest meeting that there could be “adverse spillovers to the global economy” and that Brexit was “possibly” the biggest risk to international markets. Until now, the MPC has said risks from a Leave vote are overshadowed by worries about emerging markets.
Economists are almost unanimous in saying a British exit would have a negative effect on the UK economy.
In response, the Leave campaign has “set out to neutralise the economic arguments” by playing to the growing “distrust, disapproval and dissatisfaction” with establishment figures, said Joe Twyman of the pollsters YouGov. Instead of challenging the arguments, the Leave campaign has set out to discredit the experts themselves.
New YouGov poll data, which indicate a high level of distrust of public figures among Leave supporters, suggests this tactic is working. Among Leave supporters, just 19 per cent said they trusted the Bank of England, compared with 64 per cent who distrusted it. The position is almost reversed among Remain supporters, with 61 per cent trusting the bank and 27 per cent distrusting it.
The sentiment among Leave supporters carries over to other institutions and figures such as the UN, the International Monetary Fund, religious leaders and academics.
Responding to Mr Jenkin, Mr Carney said: “All of the public comments that I, or other bank officials, have made regarding issues related to the referendum have been limited to factors that affect the bank’s statutory responsibilities and have been entirely consistent with our remits.” He added that although the bank was not bound by the purdah restrictions, they had “voluntarily determined to observe” them.
“The bank must assess the implications of the UK’s EU membership for our ability to achieve our core objectives [of stabilising prices and supporting growth],” wrote Mr Carney, adding that the duty to report these assessments in a transparent way was “enshrined in [the bank’s] remits”.
The minutes of the MPC meeting reiterated reassurances made last month that the committee would “take whatever action is needed, following the outcome of the referendum”, suggesting that interest rate changes or further unconventional monetary policies such as quantitative easing would be used in pursuit of the bank’s goal of maintaining price stability, while supporting growth and employment.
But the MPC members warned that any monetary policy action would take some time to have an effect on the economy and stressed that interest rates could move up as well as down in the event of a Leave vote.
It is widely expected that sterling will depreciate if Britain votes to quit the EU, driving inflation upwards at least in the short term.
The value of sterling has tracked polling data over the past month. There was an appreciation in late May as a series of polls suggested a strengthening of the Remain vote, but sterling has fallen sharply since then as new polls suggest growing support for Brexit.
The bank warned on Thursday that it would face a difficult trade-off in the event of a Leave vote between operating loose monetary policy to support output and employment on the one hand, and tightening it to stabilise inflation expectations on the other.