The Bank of England has stepped up its warnings about the economic risks if Britain votes to leave the European Union.
In his starkest statement yet UK central bank Governor Mark Carney said the economy would slow “materially”, even falling into recession, that the pound could lose value “sharply” and unemployment would probably rise.
He told reporters after a meeting of the bank’s Monetary Policy Committee: “Material slowdown in growth, notable increase in inflation, that’s the MPC’s judgement. It’s a judgement not based on a whim, it is the judgement based on rigorous analysis and careful consideration. Of course there’s a range of possible scenarios around those directions which could possibly include a technical recession.”
A technical recession is two consecutive quarters of GDP decline.
‘Limits to monetary policy’
Carney said there there were limits to what the BoE could do in response to an ‘Out’ vote: “Monetary policy cannot immediately offset all the effects of a shock.”
Worries about the June 23 referendum have already pulled down the value of the pound.
Referring to a leave vote, bank policymakers said: “In the face of greater uncertainty about the UK’s trading relationships, sterling was likely to depreciate further, perhaps sharply.”
The central bank – which just decided to keep interest rates on hold at 0.5 percent has trimmed its growth forecast for this year to 2 percent from February’s estimate of 2.2 percent, even if Britain votes to stay in.
Cameron and Osborne back stance
The Bank of England’s stance was cheered by British Prime Minister David Cameron and the finance minister George Osborne called it a “clear and unequivocal warning” that leaving the EU would be a “lose-lose situation for Britain”.
Opinion polls suggest British voters have been relatively resistant to warnings about the economic costs to Brexit so far with voting intentions in many polls roughly evenly split.
But Carney’s comments ahead of Scotland’s 2014 referendum on the costs of independence were viewed as swaying some voters.
Supporters of Brexit argue Britain would benefit from less European regulation and could strike better overseas trade deals on its own. Some have criticised Carney for over-stepping the central bank’s line of neutrality.
A former finance minister said the Bank’s warnings of economic trouble after a vote to leave the EU carried their own risks. Norman Lamont, who served as finance minister under former Conservative prime minister John Major, said: “The governor should be careful that he doesn’t cause a crisis.”
“If his unwise words become self-fulfilling, the responsibility will be the governor’s and the governor’s alone. A prudent governor would simply have said that ‘we are prepared for all eventualities’.”