Bank of England Governor Mark Carney on Brexit predictions

The
Governor of the Bank of England, Mark Carney, speaks to the
Scottish Economics Forum, via a live feed, in central London,
Britain March 2, 2018.
Reuters/Peter
Nicholls

• Bank of England Governor Mark Carney defended the
  central bank’s pre-Brexit forecasts in an interview with
  Bloomberg.
• He said the Bank’s pre-vote forecast that the pound
  would drop sharply was the “easiest call one could
  make.”
• The Bank of England is actively planning for a no deal
  Brexit, an outcome it describes as “disorderly.”
• Carney said that he spends half of his time working on
  Brexit.

LONDON — Predicting the immediate fallout from Britain’s vote to
the leave the European Union in June 2016 was “probably the
easiest call I’ve seen in macro in 25 years,” according to Bank
of England Governor Mark Carney.

Speaking in a lengthy interview with Bloomberg’s Stephanie
Flanders, Carney said it was entirely obvious before the vote
that
the pound would tank, inflation would
sharply increase, and
economic growth would slow in the event of Britain voting to
leave the EU.

“We did think… that the exchange rate would go down,” he said.
“We took a lot of heat for saying that in advance, but it was the
easiest call one could make, probably the easiest call I’ve seen
in macro in 25 years in terms of what was going to happen to the
exchange rate if the vote went a certain way. It did.”

The Bank of England and Carney, in particular, were heavily
criticised for their downbeat forecasts ahead of the referendum
of what would happen in the event of a leave vote. Carney’s
forecasts included a possible technical recession.
Brexit-backing Conservative MP Jacob Rees-Mogg accused Carney
of “fundamentally” undermining “the standing of the Bank of
England” with his predictions.

Although a recession did not materialise, the rest of the bank’s
forecasts were fairly accurate.

“We thought inflation was going to rise, we thought the economy
would slow. And all of those have transpired,” he told Bloomberg.
“Every prediction, every forecast, every comment in that
environment has been amplified.”

Although Carney did make an explicit suggestion that Brexit will
fundamentally weaken the British economy, he made clear that the
Bank of England is
in the process of planning for what it refers to as a
“disorderly” Brexit, which is believed to be Bank-speak for a
no deal outcome.

“Within nine months we could have a disorderly Brexit stress
test,” he said. “We have a responsibility, at a minimum, to
manage through the downside if there were a disorderly outcome,
something unpredictable.”

Carney said he now dedicates around 50% of his working life to
Brexit planning and suggested that the Bank of England may be
more prepared for Brexit than the Treasury.

During the interview, Flanders asked if the bank had “done a lot
more preparation in terms of hours than the Treasury?” Carney
replied: “I suspect that’s probably right. We can compare time
sheets afterwards.”