26 January 2016

The Guardian: Mark Carney fears Brexit would leave UK relying on 'kindness of strangers'

Mark Carney, the governor of the Bank of England, has warned that concerns about a UK exit from the EU could test “the kindness of strangers” that the UK relies on to fund its hefty current account deficit with the rest of the world. [...]

It could be made worse by a weakening global economy or if investors wanted greater returns to hold British assets, Carney told MPs in an appearance before the Treasury select committee. “The global general environment has become much more febrile, much more volatile, and relying on the kindness of strangers is not optimal in that kind of environment,” he said.

Carney was careful not to mention the looming in/out referendum but added: “The possibility of a risk premium being attached to UK assets, because of certain developments, exists and that plays into the riskiness of the situation.”

The BoE has previously said it will watch carefully for signs that Britain – which suffered balance of payments trouble in the 1960s and 1970s – might find it harder to cover its shortfall with the outside world due to concerns about the referendum. 

Carney said the BoE would have measures in place to protect financial stability if Britain opts to leave the European Union.

On Tuesday the government signalled its interest in holding the referendum in June by publishing the conduct regulations for the referendum in parliament.

David Lidington, the Europe minister, also signed a commencement order which means that the EU referendum act can formally come into force. The order allowed the Electoral Commission to open the process for the registration of EU referendum campaigners who intend to spend more than £10,000 during the referendum period.

The two moves were seen as significant because the Electoral Commission had made clear that secondary legislation, which must be passed before the referendum can be held, should be introduced six months before the referendum. The secondary legislation, or statutory instruments, will set the date of the referendum and permit the electoral commission to designate the two main campaigns on either side of the campaign.

Philip Hammond, the foreign secretary, told peers that it would be difficult to hold the referendum in June if the prime minister fails to secure a deal with fellow EU leaders in February. “If we get a deal done in February it will be possible to hold a referendum in June if we choose to do so,” Hammond said. “There is technically enough time. If the deal is not done in February that would become much more difficult. Certainly if it is not done in March it would become impossible because of the timescales provided for in the bill.”

Philip Hammond, the foreign secretary, told peers that it would be difficult to hold the referendum in June if the prime minister fails to secure a deal with fellow EU leaders in February. “If we get a deal done in February it will be possible to hold a referendum in June if we choose to do so,” Hammond said. “There is technically enough time. If the deal is not done in February that would become much more difficult. Certainly if it is not done in March it would become impossible because of the timescales provided for in the bill.” [...]

Carney also faced questions about the Bank’s concerns over financial stability, following last month’s publication of its half-yearly assessment of risks, which include the buy-to-let market and the global economic backdrop. Government policy to increase taxes on buy-to-let landlords might avoid the need for the Bank of England to act, MPs were told.

The evidence session was held against the worse start for financial markets in history amid concerns about the fall in the price of oil and a slowdown in the Chinese economy. [...]

Full article on The Guardian

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