Bank of England governor Mark Carney. Picture: AFP
Bank of England governor Mark Carney. Picture: AFP

London — Bank of England governor Mark Carney launched another defence of the BoE on Wednesday, saying its actions helped avert financial instability in the wake of June’s Brexit referendum.

Political risk weighed on the pound, which fell to its lowest level since October before he spoke.

In response to questions from MPs in London, Carney tried to distance himself from the bank’s chief economist, Andy Haldane, who said forecasters faced a crisis after the UK proved unexpectedly resilient in the second half of last year. That policy makers’ actions led to less disruption of the financial industry "perversely" caused them to be seen as incorrect, Carney said.

"One of the advantages of banishing group-think is that one doesn’t always agree with everything that’s said by colleagues," Carney said, referring to Haldane’s suggestion that they suffer from a dearth of new ideas.

Haldane said last week it was a "fair cop" that the BoE — in common with most mainstream forecasters — expected a sharper slowdown after the referendum. He said officials had not changed their view on how leaving the EU would affect the economy in the long term.

Carney told the UK parliament’s treasury committee that risks to Britain’s financial system were now less pronounced than expected, due partly to BOE action. But he said the process of leaving the EU could "amplify" certain risks.

"In the run-up to the referendum, we felt it was the largest risk because here were a series of positions and possibilities in the financial sector — things that could have happened — that would have had financial stability consequences," he said. "Having got through the night and the day after, the scale of the immediate risks around Brexit have gone down for the UK."

The BoE would stay in focus this year with MPs reviewing the effectiveness of the bank’s aggressive policy loosening after politicians including British Prime Minister Theresa May questioned its adverse side-effects.

Carney stuck to his view that BoE measures to stop market turmoil disrupting banks after the Brexit were right. "We catalysed contingency plans, actions, prepositioning of capital, other steps with major central banks, and actual better risk management, which helped ensure a smooth process," he said. This "put the country in a better place to take advantage of the opportunity".

Bloomberg

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