The Bank of England isn’t going to butt out of the Brexit debate any time soon it seems. Today’s interest rate decision produced few surprises with the Bank sticking at 0.5%. But the headlines are focusing instead on its warning about the consequences of a vote to leave the EU. The wording about the dangers of Brexit was the starkest yet. The Bank of England said:
‘A vote to leave the EU could materially alter the outlook for output and inflation and therefore the appropriate setting of monetary policy. Households could defer consumption and firms delay investment, lowering labour demand and causing unemployment to rise’
As doomsday scenarios go, excluding the Prime Minister’s warning about World War three, they don’t come much darker than this. Predictably enough, David Cameron and George Osborne have leapt on the wording of the announcement – tweeting how leaving the EU could ‘hurt working people’.
The Bank of England is right to warn leaving the EU could cause lower growth and unemployment to rise – that would hurt working people.
— David Cameron (@David_Cameron) May 12, 2016
Of course, warnings like this fit into the whole narrative of the argument to remain: if enough parts of the establishment continue to talk up the risks of walking away from Europe, the hope is that people will vote to stay in.
What’s interesting about the Bank of England’s narrative on Brexit, though, is the extent to which talk of a downturn following the EU referendum could be self-fulfilling. On one side, it’s possible to argue that uncertainty surrounding the vote on June 23rd isn’t helping Britain’s economy. But by talking up the risks, there’s also a chance of over-stating them. As the Bank of England itself admits in its minutes from the interest rate meeting, it’s clear that the MPC is being, at the least, more cautious than normal about forecasts:
‘Given (the) difficulty in identifying the underlying signal in the economic data, the Committee was reacting more cautiously to data news in advance of the referendum than would normally be the case.’
Is the Bank of England’s warning overblown? Only time will tell. But what is clear is that Mark Carney and his colleagues are going to continue to contribute to the EU debate, whether we like it or not.