The Brexit vote is still several months away but preparations for the possible repercussions of the EU referendum results are already heating up. The Bank of England governor, Mark Carney, voiced deep concerns that the June 23rd vote could trigger destabilization in financial markets and has met with Prime Minister David Cameron to discuss pre-empting what he foresees as dire consequences should the referendum lead to a separation of the UK from its EU membership.
Carney appeared before the cross-party Treasury Select Committee Tuesday together with Sir Jon Cunliffe, deputy governor in charge of financial stability, to answer questions on a possible Brexit and its impact on the country. According to Carney, the extent of the effect on Britain’s financial markets would depend on what Britain negotiated with the rest of the EU, with the key issue being the degree of recognition granted to financial services in London. If a mutual recognition framework that would mirror the current regime could not be negotiated, many British firms—including major banks--would consider leaving the city. Carney pointed out should it come to that, negotiating a deal to protect the City of London after leaving the EU would take a long time.
The Bank of England governor, Mark Carney, voiced deep concerns that the June 23rd vote could trigger destabilization in financial markets.
London Job Losses
When asked about job losses in the capital, Carney had no figures to offer but admitted that leaving the EU could lead to lower economic activity, with lower investment and spending that could lead to prices falling. And going it alone could also lead to the value of the pound falling, which might push up prices.
Carney told the MPs at the meeting that membership in the European Union carries risks especially the "unfinished business of European monetary union" but that in his opinion "The rest of the EU is more important to UK trade and investment than the converse."
At the EU renegotiation deal meeting last month, PM Cameron fought hard against leaving the EU, introducing a concession that in essence reduces immigration into the country. Most experts say the actual impact of the ‘emergency brake’ on migration will be marginal, however, as higher wages will still attract migration.
Cameron also managed to secure a deal to exempt Britain from the "ever closer union" in Europe and discussed ways of protecting the pound. The renegotiation deal also recognized the need to respect the rights of non-Eurozone members and allow non-Eurozone countries to continue to regulate their own banks.
BOE Neutral
At today’s meeting, the governor of the BOE emphasized that the Bank was not taking sides in the EU referendum but went on to say that Britain's membership of the EU has re-enforced the "dynamism of the UK economy".
According to Carney, the BOE remains ready to pump billions of pounds into the financial system in case of market turmoil following the vote and that the central bank would open its lending facility on three extra days as a precautionary measure to prevent Britain’s financial sector suffering a credit squeeze.
The extra funds would be available on two dates before the referendum and one after, in addition to the usual monthly operations run by Threadneedle Street to support short-term borrowing.
All of Britain’s major banks have warned that the uncertainty surrounding the referendum is adding to the turmoil in global financial markets and unsettling businesses which are largely in favor of the status quo. They pointed to the possibility of political ramifications. Banks are divided as to the consequences of an EU exit.