Carney’s forecasts are dubious, says King
Bank governor and his predecessor clash as peer criticises Canadian for ‘implausible’ analysis
THE Governor of the Bank of England engaged in a war of words with his predecessor as he was forced to defend his pessimistic Brexit analysis in Parliament.
Lord King of Lothbury said Mark Carney’s analysis was “not plausible” and compared it to the “Project Fear” campaign before the EU referendum. Mr Carney responded by criticising Lord King’s “less successful” record as governor and suggested his approach caused the financial crash.
Lord King said: “It saddens me to see the Bank unnecessarily drawn into this... Before the referendum, official economic projections intended to scare the country into voting Remain didn’t succeed. Based on flimsy and arbitrary assumptions, they were subsequently proved wrong. The same strategy has resurfaced.”
Lord King also said Theresa May’s Brexit deal was a “betrayal of Britain” and a “result of incompetence of a high order” that should now be voted down by MPS. “It is time to think again, and the first step is to reject a deal that is the worst of all worlds,” he added.
On the Irish backstop, he said “the country is entitled to expect something better than a muddled commitment to perpetual subordination from which the UK cannot withdraw without agreement.” He said Parliament “will not be forgiven” if it allowed Mrs May’s deal through.
Lord King, who served as governor from 2003 to 2013, wrote for Bloomberg: “I concur with Paul Krugman [an American economist]. He’s no friend of Brexit and believes that Britain would be better off inside the EU – but on the claim of lower productivity, he describes the Bank’s estimates as ‘black box numbers’ that are ‘dubious’ and ‘questionable’.”
Lord King is the latest former Bank of England official to criticise the analysis which last week said the UK could suffer the worst economic shock since the Second World War.
Andrew Sentance, a former member of the Bank’s monetary policy committee, has described it as “highly speculative and extreme”.
“It will add to the view that the Bank is getting unnecessarily involved in politics and that will further undermine perceptions of its independence and credibility,” he said.
“The Bank of England has a range of responsibilities and it needs to avoid blurring the lines between them, which has happened a lot recently.”
Mr Carney responded to Lord King’s comments before the Commons Treasury select committee. “There was a time, maybe a simpler time, but a less successful time, when all the Bank did was focus on inflation,” he said. “And we know how that turned out,” he said, referencing the financial crisis.
The Governor also said that it was “entirely unfair” to criticise the Bank for publishing its analysis, and told MPS: “You asked for something that we had, we brought it and gave it to you”.
He repeated his warning about a nodeal Brexit, and said food prices could soar “quite quickly” by as much as 10 per cent as one of the repercussions. Mr Carney was repeatedly challenged over the “credibility” of the Bank’s analysis and defended its record, adding that the projections it made before the referendum were “fairly accurate”.
One MP questioned the Bank’s position that no deal could see an increase in interest rates to 5.5 per cent, adding that the Governor had a “history of reluctance to raise interest rates”.
Mr Carney said: “I stand by our record, and my voting record.”
He stressed the Bank’s report took into consideration the “worst-case scenario” and was designed to ensure the financial system could withstand any Brexit-related shock.