The headlines will inevitably write themselves. The Bank of England backs Theresa May. The Prime Minister’s beleaguered and precarious deal is the best of all the options available and the economy may well get through the next few months largely unscathed. Following the testimony this morning from the Bank’s governor Mark Carney, most people will pick up on the support he has given to the Prime Minister and his reassurance that the economy will survive our departure.
And yet there were two more significant points that emerged from his testimony. The Bank is finally willing to concede that leaving without a deal wouldn’t be so bad after all. And just at the moment when not leaving at all has become a real possibility, the Bank has given up on it.
Rewind a couple of years and the Bank of England was warning anyone who would listen that leaving the EU would be a catastrophe of apocalyptic proportions. The City would empty, factories would shut and supermarkets would be reduced to selling the occasional turnip, or whatever other root vegetables the staff could grow in their back gardens. Now, with only four months to go, it looks as if it will be fine. In his testimony to MPs this morning, Carney argued that the deal Theresa May has agreed with the EU should leave the economy roughly where it was. The transition might need to be extended slightly, but other than that everything would be okay. Project Fear had turned into Project Hiccup.
Even leaving with no deal might not be so terrible. Sure, it would be a ‘large negative shock’. But crucially, he pointed out that it would not be a ‘financial crisis Mark II’. In fact, much would depend on how far businesses had prepared and what the impact was on the rest of Europe. If it happened, the financial system was prepared for it and the Bank was ready to do what it could as well. Being prepared for it ‘is not the same as saying everything will be alright’, he argued. True, but it is also a long way towards saying the economy will survive, which is a significant change of tone from the Bank.
More interesting still was the one scenario the Bank, it turns out, isn’t planning for. Staying in. With May’s deal struggling to get through Parliament and with demand growing for a second referendum, you might think Carney was planning for that as well. But it turns out its forecasters haven’t given it a moment’s thought, even though presumably, given the past forecasts, it would mean an immediate boost for the economy and a rise in interest rates.
In fact, one more heave from the Bank of England could have helped the ‘People’s Vote’ campaign over the line. And yet the Governor has failed to come to their aid. In the last three years he has politicised the Bank so completely over our tortured debate over whether and how we should have left the European Union that he was surely right to do so. Any more meddling might have permanently trashed the Bank’s reputation for political neutrality. But without any help from Carney, it is hard to see the momentum behind a second referendum to stay in sustaining itself. Even the Bank has given up on Remaining – and with its support gone, the door may have finally closed.