Bank of England governor Mark Carney has been pushed to release notes from private discussions he held with chancellor George Osborne to allay public concerns the central bank did not act independently in the lead up to the Brexit vote.
In a tense exchange, Conservative MP Andrew Tyrie asked Carney for a response to the “extraordinary allegation” by senior politicians that the Bank of England had been “peddling phony forecasts” to scare the UK public out of voting to leave the European Union.
Carney says he did not discuss with Osborne what “line” to take on Brexit – an action that could have undermined the Bank of England’s independence.
A letter from prominent Brexit supporters Iain Duncan Smith and Michael Howard was published in The Telegraph eight days before the 23 June referendum, arguing the Bank of Enlgand was exaggerating the economic impact of a potential decision to leave the EU.
“There has been startling dishonesty in the economic debate, with a woeful failure on the part of the Bank of England, the Treasury, and other official sources to present a fair and balanced analysis,” the letter said.
“They have been peddling phoney forecasts and scare stories to back up the attempts of David Cameron and George Osborne to frighten the electorate into voting Remain.”
Two former chancellors, Nigel Lawson and Norman Lamont also supported the letter.
Carney was asked about the nature of the discussions he had with Chancellor George Osborne in the months preceding the referendum vote, including if they spoke about the “likely line” the Bank of England might take on Brexit.
Carney told the TSC the line of the bank is the view of the committees. “I did not pre-judge the lines of the policy committees, nor could I.”
Carney adds it is important for bank governors and Chancellors to be able to have private conversations.
“I would be wary about setting a precedent about limiting free-flowing discussion between future governors and chancellors. I would not want to create a situation that every conversation between Governor and Chancellor is minuted, recorded, and tweeted in real-time.”
Carney was later questioned by Rachel Reeves MP about the Bank of England’s decision to reduce it counter-cyclical buffer rate from 0.5 per cent to 0 per cent and whether it would generate additional lending.
Carney was clear that a reduction in the buffer increases the likelihood more money will be borrowed.
He says: “We really do want to make it as clear as possible that credit will be available for the right ideas and the right transactions.”
Carney was also careful to move away from language used to describe the 2007/08 financial crisis when Reeves asked if it was possible a “crunch” might still occur.
“We are in a different situation. We have been talking to the banks and their orientation is outward facing. Their balance sheets are in strong positions. They have a lot of capital and they will need to put that to work,” he said.
Records of his discussions with Osborne on financial stability are already publicly available, he said.