Expert Alert University of Birmingham: Reaction to Mark Carney’s Statement

Article ID: 656054

Released: 24-Jun-2016 11:05 AM EDT

Source Newsroom: University of Birmingham

Expert Pitch

Dr Huw Macartney, Senior Lecturer in Political Economy at the University of Birmingham specialising in the politics of banking and financial services is available for media interviews on Carney’s statement and the banking sector post referendum.

Huw said: ‘As expected BoE Governor Mark Carney devoted most of his statement on 24th June to two big themes: first, reassuring markets that the Bank was willing to take whatever action necessary to ensure the continued functioning of the UK's financial markets; and secondly, that the Bank of England would assess measures over the coming weeks and months before deciding on what action to take with regards to the British economy more broadly.

On the first point, the Governor noted that the British banking system was well capitalised largely due to measures taken since the Global financial crisis. Perhaps more importantly though, he also alluded to the additional liquidity measures that the BoE had set in place more recently. All the evidence suggests that the Bank of England had learned a lesson from the 'dry-run' of the Scottish Referendum and had established a series of repo arrangements should banks run into difficulties in the event of a Brexit. Setting aside the details, the most important message for the British public is that in spite of the dramatic scenes taking place in financial markets, there will almost certainly not be another bank failure (like Northern Rock) or another credit crunch. In fact, one of the largest domestic banks (Lloyds) issued a public statement to this effect earlier this morning.

On the second point though, the governor alluded to the inflation vs. growth dilemma that will now face the British economy after Brexit. Lower sterling will have a positive impact on our exports and will help to buffer certain downward pressures of the Referendum decision on the British economy. There was talk in the lead up to the referendum about the potential for the Treasury (via the Bank) to intervene in foreign exchange markets to support the value of sterling, as it did in 1992. But the likelihood is that the Bank will avoid doing this, and will want to make as much use of the decline in sterling as possible. The problem though is that, as a British economy, we tend to import more than we export and so the positive impacts of a fall in sterling will be more than offset by rising inflation in the medium term. This is what the governor meant when he said that he would 'assess the economic conditions very carefully' over the coming months. Because the bank may well find itself caught between a need to cut rates (to boost the economy) and raise rates (to stave off inflation). Reading between the lines then, when the governor says that 'he will not hesitate to take additional measures' we can only assume that he is referring to an additional round of quantitative easing to boost the domestic economy.

The bottom line is that although financial markets have reacted with a lot of volatility in early trading on Friday, the real impact of the referendum decision on the British economy will only be felt in the coming months. The reassuring conclusion though is that the Bank of England looks ready to step in.'

Huw is a political economist whose work is broadly concerned with the politics of banking and financial services.

For more experts see our online guide: See our online media expert guide: http://www.birmingham.ac.uk/news/eu-referendum/experts/index.aspx


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