The UK referendum on continued membership of the EU is arguably the most important political decision that voters in the UK will ever take with a decision to leave being considered to be irrevocable. The repercussions of the UK decision, should the people decided to sever links with the EU, would likely ripple around the global economy. However, to date, there has been next to no factual information on the consequences of a decision for the status quo or a move out of the door. Indeed, the debate seems redolent of a particularly bitter divorce case before a bored family court judge.
The Governor of the Bank of England has the mandate to “promote the good of the people of the United Kingdom by maintaining monetary and financial stability.” So it could be argued that he was only doing his job when he pointed out that a Brexit constitutes the "biggest domestic risk to financial stability". Few who think about his words can argue against them: leaving the EU and hoping that the nation will somehow be better for it, largely unchanged or at the dawn of a bright new age, it is a risk, by definition whereas maintaining the status quo is not a risk, in that sense. Naturally, the two waring spouses of the (somewhat schizophreniac) leave group and remain party differ in the interpretation of Mr Carney’s message with the leave campaign accusing him of improper political meddling.
Mr Carney was speaking to the Treasury Committee, just doing his job, and pointed out that whilst remaining with the bloc carried some risk (related to concerns over EMU amongst other things) a vote to leave would generate economic uncertainty not least for inward investment, household spending levels and the fate of Sterling’s exchange rate. However, he noted:"It is the biggest domestic risk to financial stability. I would say that in my judgement the global risks, including from China, are bigger than the domestic risks."
In a separate, published letter to Andrew Tyrie, chairman of the committee, the Governor noted that the accord reached between the EU and the UK "delivers a number of protections and additional tools that will help safeguard the Bank's ability to continue to achieve its statutory objectives" and that membership of the EU had helped the "dynamism of the UK economy", permitting the economy to grow, drawing from the conclusions of a Bank of England report.
People in favour of Brexit, from an economic rather than political perspective (if they can be de-convoluted) point out that the EU would wish to continue trading with the UK and hope that the UK could (quickly!) negotiate bilateral trade agreements with key emerging markets. However, they produce nothing to back-up this wishful thinking, so Mr Carney is spot-on about risk.