Bank's Carney denies 'Brexit scare story' allegations, explains FPC thinking

Bank of England Governor Mark Carney has explained high street bank's capital buffers have been relaxed to help reassure the public that the 2008 credit crunch was not about to be repeated, while also denying that he was used by the Prime Minister and Chancellor to "scare" voters from voting to leave the EU in June's referendum.

Grilled as part of a Treasury Committee session in Westminster on Tuesday morning to examine the Bank's recent Financial Stability Report, Carney was also called to address a wide range of financial issues, from Brexit to property funds to Italian banks, with it being the first time he had spoken to MPs since the Brexit vote.

Carney rebutted allegations from several senior 'Leave' campaigners that he had guided policymakers into joining a purported 'Project Fear' attempt to scare off a potential Brexit vote, denying he had engaged in any conversations with George Osborne that "pre-judged" the discussions of the Monetary Policy Committee and added that it was not possible for him to force the Financial Policy Committee down any particular lines.

"The chair [of the FPC] does not guide conclusions. The views of the FPC are the views of the FPC. What was in the March record are the views of the FPC, they are not pre-judged or pre-decided," Carney said.

He also argued it was important for Bank governors and Chancellors "are allowed to have private conversations about key issues", though he conceded with MP Andrew Tyrie to a one-off examination of unofficial minutes in order to allay public suspicions.

The FPC's recent move, as outlined in July's Financial Stability Report, to lower the countercyclical capital buffer to enable banks to lend more freely, was "part of a series of measures" to react to the Brexit vote, assuring the MPs that there will be no "credit crunch" as banks will have funds available to lend.

Carney further played down fears of a house prices crash, adding unemployment is lower that during previous downturns, which will reduce the number of mortgage payments defaults.

"We have run those stresses and we have banks capitalised so they can withstand those stresses," he said.

The Canadian was also questioned as to why the Bank had not acted with regard to the raft of property funds that had recently suspended redemptions and sparked wider property sector and economic concerns. He assured that the City regulator had already begun looking at the issue of funds being created "with daily liquidity that invest in illiquid assets", such as property.

FPC member Richard Sharp added that there would not be a fire sale of assets to meet the redemptions: "Clearly they should be looking to liquidate the assets but the gating means they don't have to make adversarial sales. They're going to try and do it in an orderly fashion."

The Bank’s Monetary Policy Committee (MPC) is widely expected to announce fresh stimulus measures such as cutting interest rates from their current 0.5% low and making a new extension to the quantitative easing programme, either as early as Thursday's monthly policy decision or at next month's equivalent.