Bank of England governor Mark Carney said the UK “sailed through” the Brexit referendum aftermath because of the monetary policy action the Bank of England took and has admitted the base rate could be cut again before Christmas.
Appearing before the Treasury select commitee this afternoon, Mr Carney said he was “absolutely serene” about his predictions before the vote.
Before the referendum Mr Carney warned Brexit “could possibly lead to a technical recession” with a “materially lower rate of growth”.
But some MPs on the committee had criticised these interventions and this afternoon the committee’s chairman Andrew Tyrie questioned whether he had “over-egged” it.
In response Mr Carney said: “In light of all the events since the referendum, I’m absolutely serene about the comments made both by the monetary policy committee and the financial policy committee.
“The market events, the liquidity pressures that were met because of the contingency measures that were taken absolutely validated the steps that we and other central banks took.
“The fact is, the UK financial system sailed through.
“Part of it is because the Bank took timely and comprehensive action. It has helped to reinforce other factors which have been supporting confidence.”
He pointed out that the Bank of England was “above consensus” when compared with private sector predictions for what would happen to the British economy after the referendum.
However Mr Carney said that despite some of the positive economic data “there are scenarios where the economy does not grow” but he said a recession has become less likely since the vote to leave the European Union in June.
He added a majority of members of the Monetary Policy Committee felt that if the economy continued to evolve as predicted, then another interest rate cut would be needed before the end of the year.
Committee member Rachel Reeves asked Mr Carney about whether the Bank’s decision to cut interest rates by 0.25 per cent has been passed on by lenders, citing figures which showed the average standard variable rate (SVR) falling by only 0.09 per cent.
Mr Carney said: “For five of the big six banks, which account for the vast majority of SVR lending, they have all passed it on and the sixth, I am confident they will pass it on based on conversations.
“The data of quote is correct but it largely represents 51 smaller lenders whom we supervise and in virtually every case they have not yet had their board meetings, which are required.”
He responded to Ms Reeves’ concerns that banks have proven much quicker to pass the rate cut onto savers than onto borrowers by saying he had received several letters about this, adding: “It is an asymmetry of which I am now aware.”
Ian Kernohan, economist at Royal London Asset Management, said: “The Bank’s central view is that the Brexit process will take some time, and this will create uncertainty for households and firms.
“The MPC have already signalled that they expect to cut interest rates again, if economic news meets their expectations for August.
“In our view, the news since the August Inflation Report should not have created any major surprises for them, and we expect another rate cut from the Bank of England in November.”
