×

BoE's Carney: EU boosts UK, but may threaten stability

Bank of England Governor Mark Carney
Getty Images
Bank of England Governor Mark Carney

Mark Carney, the governor of the Bank of England, has spoken of the benefits of the U.K.'s membership of the European Union, but he warned of potential pitfalls, as the country prepares to vote on membership of the single market.

Being part of the EU "reinforces the dynamism of the U.K. economy," Carney said in a speech in Oxford on Wednesday night. His praise for the benefits of EU membership, which he said had increased dynamism and openness in the U.K.'s economy for "the majority" of the four decades it has been part of the EU, went hand in hand with a warning on regulation which should be music to the U.K. government's ears.

The governor also cautioned that membership can expose the U.K. to greater financial risks, citing the recent euro area crisis as an example, and warned of the potential for the EU to become a "dragging anchor."

Carney spoke of the need for "clear principles to safeguard the interests of non-euro member states" like the U.K. as the euro area prepares to integrate more closely, and the importance of "national discretion" when setting laws, both of which chime with the current U.K. government's thinking.

Carney called for "an evolution of the EU regulatory framework that continues to work for all members of the EU."

"Steps to ensure financial stability for those within the euro area should not impede the achievement for those without," he added.

Carney also feted the importance of "free movement of labor" to "the openness of the U.K. economy," a comment which arguably contradicts government efforts to limit migration to the U.K. Free movement of workers is one of the founding tenets of the EU but has caused headaches for the government over migration targets, as more people arrived in the U.K. from new EU states such as Poland and Romania than predicted.

EU membership has also limited the U.K.'s ability to be flexible on issues like the bonus cap, Carney pointed out.

The governor was eager to stress that this speech was not the bank's nor his own take on Brexit, but a report into how EU membership affects the bank's objectives.

The Bank of England's announcement comes as the British establishment is increasingly concerned about the possibility that the referendum promised by David Cameron by the end of 2017 may actually lead to the U.K.'s leaving the European Union.

Cameron is currently trying to negotiate some concessions from his colleagues in other European countries, but he has been criticized for not coming up with concrete requests. The debate over Brexit has also taken a back seat to the ongoing refugee crisis and the summer's reignition of worries over Greece.

Carney, whose remit is nonpolitical, has recently spoken out about the dangers of climate change to investors, as well.

He said to MPs on Tuesday that the speech would be a "bit of a yawner."

On Wednesday, the influential Confederation of British Industry came out in support of the U.K.'s staying within the EU.

"Most of our companies want the UK to be in a reformed EU. For business, the benefits of full membership outweigh the disadvantages, but the EU must work better," John Cridland, CBI director-general, said in a statement.

"The Single Market has been the solid foundation of our economic success in recent decades, giving us direct access to eight times more consumers than in the U.K. alone and ensuring we can go toe-to-toe with larger economies on major trade deals, creating jobs and economic growth here in the U.K."