Governor: Brexit uncertainty slowing down Scots economy
Carney steers clear of passing comment on an independence poll mark two
WHAT a difference two years make. In September 2014, just ahead of the independence referendum, Bank of England Governor Mark Carney found himself right in the thick of a highly-charged debate as he gave some forthright views on the big currency question, among other things.
How many would have thought that two years later, on his first visit to Scotland since the days leading up to the independence referendum, Mr Carney would be back in Edinburgh talking about Bank of England measures to support the UK economy following the Brexit vote? Former prime minister David Cameron and erstwhile chancellor George Osborne would presumably be among those who would not have foreseen such a scenario.
Mr Carney, in an interview with The Herald during a low-key visit north of the Border yesterday, seemed determined to avoid being drawn into the renewed debate over Scottish independence that has resulted from the UK electorate’s decision to leave the European Union.
The Bank Governor, fresh from sitting in on an agricultural round table at the Royal Highland and Agricultural Society of Scotland’s Ingliston House, was far more willing to discuss the aftermath of the Brexit vote than talk about the issue of a second independence referendum or associated matters.
He politely but firmly, with a smile that seemed to indicate an acute awareness of the sensitivity of the Scottish constitutional question, made it plain in response to the second question on the independence issue that it was not an avenue he would go down.
Asked for an opinion on what bearing recent Scottish growth and fiscal figures had on the constitutional debate, Mr Carney replied: “I don’t have a view in terms of bearing on the constitutional debate.”
In response to the first question related to the independence topic, he had emphasised that Scotland and other parts of the UK were facing up to the same issues in the wake of the Brexit vote.
There has been much debate in recent weeks over whether or not uncertainty arising from the prospect of a second independence referendum is weighing on the Scottish economy.
However, asked whether he had seen, or expected there to be, an impact on the economy from the heightened constitutional debate in Scotland in the wake of the Brexit vote, Mr Carney replied: “At this stage, there is a common issue across the regions, across home nations, across sectors of the economy, where individuals and businesses are coming to terms with the potential changing nature of the relationship with Europe and the changes and challenges that brings.
“That is the principal uncertainty people are addressing. It is still early days in that adjustment.”
Mr Carney highlighted a slowing of the economy in Scotland as businesses assessed what the Brexit vote meant for their investments, emphasising this mirrored the situation across the UK.
He said: “Scottish businesses are having to think through the potential nature of the future relationship with Europe and the rest of the world and what that means for their investments just now. That, at the margin, is slowing the economy as businesses are prudently examining what their options are. That is common across the United Kingdom.”
Mr Carney, although forecasting the challenging environment for the North Sea was likely to persist for some time and flagging its broader impact, highlighted his view the economy north of the Border had “built strength” in the two years since he last visited Scotland.
He said: “The Scottish economy has continued to progress …You see that in the jobs figures. Unemployment [is] now less than in the United Kingdom as a whole…You see it [progress] in the services sector of the economy was well. There is a number of strengths.”
Referring to the need to adjust following the Brexit vote, Mr Carney added: “I have every confidence that this economy will adjust, and will adjust well.”
Mr Carney highlighted the “support” provided by the Bank’s Monetary Policy Committee to the UK economy following the Brexit vote. In August, the MPC cut UK base rates to a fresh record low of 0.25 per cent. The scale of the Bank’s quantitative easing programme of Government bond purchases, aimed at stimulating the economy, was hiked by £60 billion to £435bn.
And the MPC unveiled a £10bn corporate bond-buying programme
Referring to the Brexit vote, Mr Carney said: “The decision to leave does bring a period of adjustment. What we have looked to do is provide some support to the economy to help with that adjustment, both in terms of improving the ability of banks to lend … and improving the cost of borrowing by lowering interest rates and making some asset purchases.
“I think we all know this is a period of some uncertainty.”
The MPC earlier this month signalled that, if at the time of the November forecasting round the economic outlook was judged to be broadly consistent with the August inflation report projections, a majority of members expected to support a further cut in base rates.
Commenting on the evolving UK economic situation, Mr Carney declared: “As all of the MPC said in our most recent decision in September, the broad contours of how the economy is performing [are] in line with what we had expected in August. We are seeing a softening in business investment, a softening in the real estate market.”
He noted such “big lumpy decisions” were being affected by uncertainty after the Leave vote.
He added: “At the same time, the consumer is holding up. In the middle is the housing market, where there are mixed signals.”
Assessing the overall picture, Mr Carney said: “We had expected in August that the economy would slow materially during the second half of this year, relative to relatively strong growth in the first half of this year. Broad brush, that is what we are seeing.”
‘‘ Scottish businesses are having to think through the potential nature of the future relationship with Europe and the rest of the world