BoE's Carney treads carefully in testimony to Treasury Select Committee

Bank of England Governor Mark Carney offered a parliamentary committee a balanced opinion on membership of the European Union, saying it benefitted the UK economy by increasing its openness but admitted there were risks from remaining in the EU and in particular from developments in the euro area.

However, later in his testimony Carney appeared to try and clarify that the above risks and benefits accruing to Britain were not meant to be interpreted as an analysis of whether to remain inside or leave the EU but rather should be considered as some of the elements which needed to be taken into consideration.

Carney emphasised that neither were he and Deputy Governor Jon Cunliffe aiming to provide a comprehensive analysis of the potential impact of Brexit in their testimony, only of how it might affect the Bank's remit in terms of reaching its inflation target and maintaining financial stability.

"We will not be making any recommendations with respect to that decision [the EU referendum]," he added.

As regards those risks, Carney took care to note he was talking in terms of "market functioning" not of "imperilling market stability".

Those risks were inherent to the openness which belonging to the EU brought with it, he said.

Nonetheless, when queried by the members of the committee he admitted the possibility did exist that some banks might opt to leave the City should Britain decide to leave the EU.

Likewise, Brexit could entail short-term risks to the country's financial stability while over the longer-term it was harder to make a precise judgement.

In a letter submitted to the chairman of the committee, Andrew Tyrie, ahead of Tuesday's hearings, Carney said that the European Union'ts reformed regulatory framework allowed policymakers at the Old Threadneedle Street to meet their financial stability mandate and that their ability had been increased by the Settlement reached by the Prime Minister with his EU peers.

Carney also emphasised in that same letter that belonging to the EU benefits the UK, reinforcing its dynamism to the extent that it results in greater economic and financial openness.

"First, to the extent it increases economic and financial openness, EU membership reinforces the dynamism of the UK economy. A more dynamic economy is more resilient to shocks, can grow more rapidly without generating inflationary pressure or creating risks to financial stability and can also be associated with more effective competition."

In response to a question from the Committee, the Governor said he had not held conversations with the Prime Minister regarding what he might say about the European Union.

"As you would expect I had conversations entirely consistent with what we have put in the public domain about the European Union.

"In the current status quo we have the tools to deal with our remit. Our concern is the potential evolution of the euro area and we've had detailed conversations about this".

As of 11:12 GMT the yield on the benchmark 10-year Gilt was down by nine basis points to 1.39% but cable was only off slightly, edging down by 0.35% to 1.4216.