A no-deal Brexit is firmly on the cards – what are you going to do about it, Mark Carney?

No one can expect a central bank to possess magic powers to defy economic realities such as food shortages. We can, though, reasonably expect them to explain to the public they serve how they propose to protect their bit of the country – the money bit – from disaster

Sean O'Grady
Thursday 02 August 2018 18:01
Scorched by the experience of being mauled by the bad boys of Brexit, Carney shies away from the reality of a cliff-edge that is growing ever closer
Scorched by the experience of being mauled by the bad boys of Brexit, Carney shies away from the reality of a cliff-edge that is growing ever closer

“If a week is a long time in politics, then two years is an eternity in monetary policy.” Urbane as ever, Mark Carney, the governor of the Bank of England, opened his press conference by reminding his audience of the measures taken by the Bank immediately after the 2016 EU Referendum result – a cut in the interest rate to a lowest-ever 0.25 per cent plus a package of other schemes to support bank lending and the wider economy.

Narrowly avoiding the slightest smirk of smugness – which would be anyway quite forgivable – he declared the policy had been such a success that the economy was now strong enough to withstand some modest tightening of interest rates, as unemployment stands at a 42 year low and wage growth is, at last, picking up, and households have even paid down some of their gigantic debts.

Mission accomplished, then, as they say.

But what of the next mission – Mission Cliff Edge Brexit?

It’s fair to say that Carney is more circumspect about the looming calamity than he once was. Looking back through the cuts you find headlines from that 2016 referendum campaign such as: “Brexit vote may spark recession, says Carney” (The Independent); “EU referendum: Mark Carney warns Brexit is biggest risk to Britain’s financial stability” (The Daily Telegraph); and “Bank of England governor Mark Carney sounds dire warning over Brexit Britain’s economy – and expertly trolls Boris Johnson” (Daily Mirror).

Happy days, eh? Of course, Carney would claim that we would have had a recession had the Bank and the Treasury not taken radical evasive action, but that’s a debate for another day.

My point here is that Carney doesn’t say that sort of stuff now about a recession, even when speaking directly about a cliff edge ultra-hard Brexit, where we crash out and end up on WTO rules (which was supposedly so unimaginable back in 2016).

Carney’s answer to that challenge is as follows, paraphrased. First off, the Bank can’t know exactly what’s going to happen any more than anyone else. It needs a working assumption, and that is that there will be a “relatively smooth transition” with an impact that is the average of a range of possible outcomes. Best guess, in other words.

Second, if the cliff edge does indeed come to pass then they will deal with it. Trust the Monetary Policy Committee is the subtext.

Third, more optimistically, or not depending on how the economics plays out, any or all of the possible Brexit outcomes would mean higher interest rates in any case, so you may as well take a little step now. “We’re probably right anyhow” is the decoded message there.

OK? Well, yes and no, governor. Don’t know about the atmosphere in Threadneedle Street, but out here some of us are bricking it.

Carney was open enough to tell us that he and his colleagues in the Bank had been having various discussions with the European Central Bank, the European Commission, various European regulators, and HM Treasury about what might happen not just to the macro economy but to the vast, vast, vast trillions of dollars/pounds/yen/Yuan/euro in financial contracts that cross borders and are usually settled in London. We – the UK – are the centre of the plumbing system of the world financial system, and we’re about to – excuse the indelicacy – block the bog. There will be a mess: a truly dirty Brexit.

All well and good, Carney having these meetings – he declined however to tell us what, how and when he and his Dyno-Rod squad of multinational central bankers would be fixing things and what we’re all to do in the meantime. Perhaps he thinks he might scare us unduly. Perhaps he reckons Jacob Rees-Mogg would try and rough him up again. Perhaps he’s just prudent. But the thought occurs to me that he and his clever mates might not even be able to get on a plane to visit the ECB in Frankfurt after 29 March 2019, should the worst predictions come true. Can we be sure they’ve got a plan for such an unprecedented event? What, pray, is it? They’re not saying.

We have, then, gone from one extreme to t’other. Before the 2016 referendum, arguably, the Bank was too gloomy and participated too enthusiastically in so-called Project Fear. Now, scorched by the experience of being mauled by the bad boys of Brexit, governor Carney shies away from the reality of a cliff edge that is growing ever closer. We are talking about stockpiling tins of tuna, for heaven’s sakes. Yet the governor of the Bank merely smiles when asked to identify the things they’d do to ensure financial stability and support the economy, if and when the recession he told us so confidently back in 2016 would accompany Brexit does indeed descend on us – but worse than anyone could have predicted.

No one should expect any central bank to single-handedly ensure economic growth or possess magic powers to defy economic realities such as immobile ports, factories laying off thousands, the M20 turned into a lorry park, shortages of medicines and food. We can, though, reasonably expect them to explain to the public they serve how they propose to protect their bit of the country – the money bit – from disaster. Maybe the collapse in sterling not yet anticipated by markets would be so big that they’d actually have to start raising rates again in the medium term, after an initial rescue package got us through the Spring Brexit Cliff Edge Crisis.

At all events, we need to hear much, much more from Carney, who seems to expect ministers to do his PR for him (i.e. people who can’t even do their own). We are grown-ups. We can take it.

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