Carney: Brexit, Not BOE Policy, Key To Medium-Term Prosperity

By David Robinson

     LONDON (MNI) - Bank of England Governor Mark Carney said that the United

Kingdom's relationship with the European Union and reforms associated with it

will be key to the UK's medium-term prosperity and these issue lie outside the

BOE's influence.

     In remarks opening the BOE's conference on central bank independence,

Carney highlighted the limits of the BOE's powers. The real economy, the

country's productivity and trading relationships, are outside the scope of the

Bank's powers. It can only continue to try and deliver price stability and

regulatory control.

     "Monetary and financial stability are foundational. They are necessary for

prosperity but they aren't sufficient to deliver it. The biggest determinants of

the UK's medium-term prosperity will be the country's new relationship with the

EU and the reforms it catalyses. Most of the necessary adjustments are real in

nature and therefore not in the gift of central bankers," Carney said.

     In times like the present the MPC can extend the time it takes to return

inflation to target but it cannot offset weaker income growth resulting from

changed trading arrangements.

     "While carefully circumscribed independence is highly effective in

delivering price and financial stability, it cannot deliver lasting prosperity

and it cannot solve broader societal challenges. This bears emphasising because

in recent years a host of issues have been laid at the door of the Bank of

England from housing affordability to poor productivity," Carney said.

     "Monetary policy will be set to achieve the inflation target in a way that

helps smooth real adjustment in the economy and supports jobs in the wake of

very large external forces. Banks will be capitalised so that they can withstand

any severe shock that could be associated with Brexit -- however unlikely -- and

still meet demand for credit. The financial system as a whole will have the

capacity to finance the transition and the opportunities beyond," he concluded.

--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com

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