Bank of England (BoE) 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 on 7 September, Mr Carney said he was “absolutely serene” about his predictions before the vote.
Before the referendum, Mr Carney warned that Brexit “could possibly lead to a technical recession” with a “materially lower rate of growth”.
But some MPs on the committee criticised these interventions, and last week 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 (MPC) 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 BoE took timely and comprehensive action. It has helped to reinforce other factors which have been supporting confidence.”
He pointed out that the BoE 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 added that a recession had become less likely since the vote to leave the EU in June.
He said a majority of members of the MPC 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 whether the BoE’s decision to cut interest rates by 0.25 per cent had been passed on by lenders, citing figures which showed the average standard variable rate (SVR) fell 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 it will pass it on based on conversations.”
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 has already signalled that it expects to cut interest rates again, if economic news meets its expectations for August.
“In our view, the news since the August Inflation Report should not have created any major surprises for it, and we expect another rate cut from the Bank of England in November.”