Pound slumps as Carney is accused of pro-EU stance
Published 09/03/2016 | 02:30
The pound suffered its biggest drop in almost two weeks versus the euro as Bank of England governor Mark Carney said Britain's potential exit from the European Union would hurt the City of London and worsen risks to financial stability.
It's bad news for Irish exporters, many of whom have come to rely on a strong pound to boost margins.
Mr Carney was accused of jeopardising the Bank of England's credibility in the European Union debate as he faced a fiery line of questioning from UK legislators.
While the BOE governor has spent months trying to avoid the political battle - a task MP Andrew Tyrie compared to bomb disposal - some members of the Treasury Committee said BOE statements, including an October report and a letter published yesterday, supported the government's bid to keep Britain in the bloc. They questioned whether the central bank had overstated the positives.
"The language we've used in the report, the language we use in the letter, is careful," Mr Carney told the cross-party panel yesterday. "To state the obvious, economic questions are important questions in terms of the broader decision the people of the UK have to make."
Tensions are running high in the build-up to the referendum.
The opening of the hearing on the economic and financial costs and benefits of EU membership was dominated by a testy exchange between Mr Carney and pro-Brexit MP Jacob Rees-Mogg of the Conservative Party.
"You are coming out with the standard pro-European Union group" lines, Mr Rees-Mogg told the governor. "It is beneath the dignity of the BOE to be making speculative pro-EU statements."
"I'm not going to let that stand," Mr Carney said.
He defended the BOE's independent stance by saying economic issues are not the only consideration and the central bank will not make any recommendation on the topic.
Later, when Mr Rees-Mogg said Mr Carney wasn't upholding the BOE's "Olympian detachment" from politics, the governor accused him of "selective memory" in relation to his testimony.
Sterling fell against the dollar as well as the euro, ending its longest winning run in eight months as Mr Carney told MPs at Westminster that the debate had increased volatility. It was "without question" that the financial industry would lose some business if Britain quit the world's largest trading bloc, Mr Carney said, echoing the sentiments of lenders including Goldman Sachs and HSBC.
A Brexit would be a "risk to domestic financial stability and it has some potential to amplify pre-existing risks to financial stability," the governor said.
Britain's currency has borne the brunt of investor unease about the possibility of a Brexit this year, with its 3.6pc slide versus the dollar being the worst performance after the Mexican peso's among 16 major peers.
Economic turmoil in the wake of a vote to leave could potentially strengthen the argument for the BOE to keep interest rates at a record low for longer. That's supporting government bonds.
"It's pretty obvious that we are going to have this uncertainty for the next few months," said Christin Tuxen, a senior analyst at Danske Bank.
The pound depreciated 0.6pc to 77.66 pence per euro as of 4:42 p.m. London time, the biggest decline since February 24. (Bloomberg)