No one can be in much doubt any more about the views of the Bank of England on a British exit from the European Union. In its inflation report this month, it sketched out a series of scary scenarios.
That is fair enough – the Bank has a duty to warn people of what the consequences of that decision might be. But since it never got around to examining any of the potential upside of Brexit – in higher productivity, for example, or lower food costs, or better trade deals outside Europe – it was hardly balanced.
That will have an impact. Polls show that the Bank’s Governor, Mark Carney, is one of the most trusted voices in this debate. But that doesn’t mean his intervention was wise. The betting odds right now suggest that the UK will vote to remain in the EU next month. However, if they turn out to be wrong, and we vote to leave, there will be an inevitable blood-letting. David Cameron will be one victim – it is hard to see him surviving a vote to leave when he has campaigned so strongly to stay. But the Bank of England might be another.
It is not even as if Carney’s arguments for intervening were very strong. Firstly, if the Leave camp does end up victorious, there will inevitably be turbulence in the markets on 24 June. Sterling will get hammered, and there will be a lot of nervous selling of British assets as investors wait to see what sort of trade deal gets negotiated with the rest of Europe. No major country has ever left the EU before, so no one has the foggiest what might happen. In those circumstances, the job of the Bank will be to calm things down. But how can it do that if it has already said there will be chaos if we leave? You could hardly blame investors for dumping sterling – no less an authority than the Bank of England will have told them the country is going down the tubes. In effect, it is making its job impossible if we do leave.
Secondly, the economics of Brexit are, in reality, completely unknowable. For all the experts wheeled out on both sides of the issue, we have no real idea what the impact will be. The truth is that we will probably lose a little bit of trade with Europe, although not as much as some of the scare stories suggest, while we will probably gain a bit from slightly less burdensome regulation, and greater flexibility in negotiating our own trade deals. Net-net, it probably won’t make a great deal of difference one way or another, and it won’t be so dramatic that it won’t be swamped by all the other things going on in the economy at the same time. But for an institution that spends most of its time writing letters to the chancellor explaining why it has missed its inflation target to pretend that it knows exactly what will happen if we leave appears ridiculous – and that is hardly a great look for a central bank.
Finally, there will be nothing chaotic about Brexit. The Bank was perfectly justified in intervening in the Scottish independence referendum in 2014. The SNP had no plan for what currency it would have if Scotland left the UK, and no idea where the tax revenues would come from to pay for its lavish public spending plans. Britain is very different. The UK after a Brexit would carry on much as before, with the same currency, and the same government finances (except for the money saved that we send to Brussels) and roughly the same economic outlook. There is far less justification for all the dire warnings.
The Bank should just tell people the economics of Brexit are complex, that there are arguments on both sides, put the facts as it sees them up on its website, and leave people to make up their own minds. And it should prepare its own response to make sure that markets still function smoothly whichever way the vote goes. By involving itself in a political debate – in which it has no proper role – it is putting its independence at risk.