The Governor of the Bank of England, Mark Carney, has defended his stark warnings about the negative impact of Brexit on the economy before MPs as signs multiply that economic activity has held up better than expected since the June referendum.
Firming business activity surveys and resilient retail spending data in recent weeks has led to claims from some Brexit supporters that the Governor’s warnings of recession have now been exposed as scaremongering and that the Bank’s Monetary Policy Committee (MPC) was too quick to cut interest rates after the vote.
But Mr Carney denied these charges while answering questions before the Treasury Select Committee.
“In light of all the events since the referendum I’m absolutely serene about the judgements made by both the MPC and FPC [Financial Policy Committee],” he said.
“We certainly welcome the signs of stabilisation,” Mr Carney said, adding that the Bank had expected a bounceback in the much-watched Purchasing Managers’ Index (PMI) surveys when it cut interest rates on 4 August.
That bounceback has prompted a host of City of London economic forecasters to revise away their expectations of a recession in the second half of this year, although a sharp slowdown in growth is still widely anticipated.
Before the EU referendum in May Mr Carney said that a “technical recession” was a possibility in the event of a majority Brexit vote by the British public.
Last month the Bank cut interest rates to a new historic low of 0.25 per cent and pushed the button on another £70bn of Quantitative Easing as it unveiled its biggest downgrade in growth forecasts in its modern history.
Mr Carney denied the charge levelled by the pro-Brexit Conservative MP Jacob Rees-Mogg that the Bank had issued “dire” warnings before the vote, responding that he had appropriately highlighted risks.
The Governor also added that the monetary stimulus the Bank had implemented and its rapid offer of liquidity to the banking system had been one of the major reasons financial conditions had stabilised.
“We have made the crystallisation of those risks less likely,” he said.
“Part of the bounce-back, of course part of it, I’m not going to represent all of it by any stretch of the imagination, but part of it is … because the Bank took timely, comprehensive and concrete action and that action has had an impact.“
Mr Carney also said the Bank had “helped ensure that what was a surprise for financial markets passed smoothly”.
“That allowed us not to have an overshoot.”
Sterling suffered a record fall against the dollar in the two days in the wake of the 23 June vote, sinking to its lowest rate against the US currency in 31 years.
In August the Bank of England said it could cut interest rates again later this year if the economy deteriorated on the path expected.
Traders are now scaling back their bets on another cut in light of the more positive economic data.
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