Mark Carney has once again been forced to defend the Bank of England's stance on Brexit, amid accusations that Threadneedle Street has strayed into political territory with its admission that a vote to leave the European Union could push Britain into recession.
The Bank of England governor’s warning last month that Brexit could result in a “technical recession” was far milder than the shock scenarios outlined by the treasury on Monday, but have nonetheless enraged the Vote Leave camp.
One prominent Vote Leave supporter, Tory MP Jacob Rees-Mogg, has already called for Carney’s resignation and went on the offensive again yesterday as the Bank of England boss made his latest appearance at Westminster for a grilling by the treasury select committee. In sometimes heated exchanges, Eurosceptic Rees-Mogg accused the governor of damaging the bank’s reputation by “taking sides” in the increasingly ill-tempered debate over Britain’s future in Europe. The central bank had “become the creature of the government,” peddling its propaganda, the MP claimed.
Carney in turn accused his inquisitor of undermining the bank. He strongly refuted allegations of a political agenda, saying the public had the right to be informed – even if that has proved “inconvenient” to the pro-Brexit camp.
“We have not supported one side. We have supported low and stable inflation,” said Carney. In his view, he told the committee, it would be more of a political act to wilfully ignore the possible consequences of Brexit.
Visibly shocked
It wasn’t just accusations of being the government’s creature that Carney faced. Another MP on the committee wanted to know if Goldman Sachs – which has donated to the Remain campaign – was pulling the governor’s strings. A visibly shocked Carney, a former managing director at the investment bank, declared himself “stunned” at the suggestion.
Carney told MPs he'd had "a series of conversations" with chancellor George Osborne prior to raising the risk of a post-Brexit recession earlier this month. But his insistence that the bank is resolutely apolitical took a slight knock when it emerged during yesterday's session with MPs that he had been shown an advance copy of the latest treasury report at a breakfast meeting with the chancellor a fortnight ago.
But then there’s plenty in the Brexit debate for the conspiracy theorists to get their teeth into, not least the missing scenario in that gloom-laden treasury report. Released on Monday, it concentrates on the likely short-term impact of Brexit and rams home the government’s message of economic Armageddon if the nation should decide to quit the EU on June 23rd.
The result would be an “immediate and profound” economic shock, pushing Britain into a recession of up to a year, dubbed a “do it yourself recession” by Osborne. Two separate scenarios are detailed – one assumes Britain would negotiate a bilateral trade agreement with the EU and the other is modelled on Britain defaulting to membership of the World Trade Organisation.
‘Shock scenario’
Under the first “shock scenario”, GDP is forecast to be 3.6 per cent lower two years after Brexit than if Britain were to remain, unemployment would rise by 520,000, sterling would fall by 12 per cent and house prices by 10 per cent. Under the second “severe shock” scenario, GDP is forecast to be 6 per cent lower, 820,000 jobs would go, sterling would fall by 15 per cent and house prices by 18 per cent.
Those who have been following the Brexit debate closely will notice a significant omission in the latest treasury report – the absence of a third scenario, which was included in the treasury’s first report, on the longer-term impact of Brexit. This assumed a deal with the European Economic Area, the so-called Norwegian model. Could it be that under this scenario Britain would not fall into recession as a result of Brexit and thus was not included in the forecasts?
There will be many more forecasts to come over the next four weeks as the opposing camps desperately push their cases ahead of the poll. Some outcomes are more plausible than others but no one can say with any degree of precision what will really happen if voters do choose Brexit – and the dangers of forecasting even a few months ahead, let alone years, were all too evident yesterday in a dismal set of public finance figures.
Just one month into the new fiscal year, the office for national statistics revised up its estimate of government borrowing for the past year, from £74 billion to £76 billion. In the March budget, Osborne’s target was set at £72.2 billion, leaving an overshoot of almost £4 billion in just two months.
Fiona Walsh is business editor of theguardian.com
