Carney Is Back at Center of Brexit Schisms
(Bloomberg) -- It’s a busy week for a central bank governor when an interest rate decision is the third-most important thing to happen.
While Thursday’s judgment to keep borrowing costs unchanged would normally have been the Bank of England’s primary focus, Governor Mark Carney found other ways to make headlines.
First, he saw his term extended by seven months on Tuesday in order to help smooth the U.K.’s transition out of the European Union. Two days later, the Canadian was making waves in the Brexit debate once again, when details of his dire no-deal warnings to Cabinet began to emerge.
Carney’s travails are indicative of the perils of running the central bank in a nation going through an unprecedented political upheaval, and also serve as a reminder of what he signed up for by extending his stay for a second time.
By agreeing to remain governor until well into the proposed transition period -- or, worse, to being on hand as the nation crashes out of the bloc without a deal -- Carney has cemented his importance as a source of stability in the U.K., as unpalatable as that may be to his pro-Brexit detractors.
The reaction to Carney’s extension, and his subsequent warnings, are a microcosm of the controversy he’s stirred in his role thus far in Brexit. While some have welcomed his moves to buttress the financial system in the aftermath of the referendum in 2016, euroskeptics have criticized him for wading too far into the political debate with overly-gloomy predictions. Jacob Rees-Mogg, a Brexit purist, called him the “high priest of project fear.”
The governor used an opinion piece in the Daily Mail Friday to defend the BOE’s interventions, writing that the central bank’s “job is to prepare for the worst, not hope for the best.”
Carney joined the U.K. Cabinet, chaired by Prime Minister Theresa May, on Thursday to share worst-case economic scenarios used by the central bank, people familiar with the matter said. He told those present that crashing out of the European Union without an agreement would lead to a fall in the pound and higher tariffs, pushing inflation higher.
That would make it harder to cut borrowing costs to support the economy as the BOE did in the aftermath of the Brexit vote in 2016, said the people, who who asked not to be named because the discussions were private. A spokesman for the BOE declined to comment.
Carney also outlined an extreme scenario in which house prices fall by 35 percent. The BOE has previously run stress tests showing that banks could cope with such a situation.
At the interest-rate decision the BOE’s Monetary Policy Committee reiterated that Brexit was the biggest challenge to the outlook and that uncertainty about the U.K.’s future outside the EU had risen.
While the governor finally removed some uncertainty about his own future, he won’t be abandoning Britain when he leaves the BOE in January 2020. Another report said he’s about to become a U.K. citizen, having now spent the requisite five years in the country for naturalization.
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