There was a wee flurry of excitement in Westminster shortly after 11am this morning when the Bank of England released the statement from its latest Financial Policy Committee. Some people campaigning for the Remain camp saw the following passage and declared that it constituted a new warning about the risks of Brexit:
I confess that when I first read the paragraph I assumed that this was pretty much in line with what Mark Carney said at the Treasury Select Committee earlier this month: that Brexit was a big risk for the financial system, and could push up funding costs.
Indeed, at the underground briefing I attended alongside a bunch of other financial reporters this morning, we peppered the Bank experts with questions about Brexit and were given the firm impression that their position hadn’t changed at all.
So I re-read the statement. It is certainly the case that, in that paragraph above, the Bank is a little more explicit and succinct about the impact of Brexit. At the Treasury Select Committee, Carney talked about “challenges in bank funding and an adjustment in credit spreads for UK‑focused corporates”. This time the Bank said Brexit would “affect the cost and availability of financing for a broad range of UK borrowers”. Is that more or less the same thing in different language? Perhaps, perhaps not.
Either way, there was also another interesting Brexit-related nugget in the Bank’s statement (though really the bigger story was about buy-to-let) a couple of paragraphs lower down:
To translate: the Bank has looked at its 2014 stress tests to give it a kind of analogy to the kinds of things that could happen in the event of Brexit. And found that the financial system, while stressed, should survive just fine. In fact, it found it would survive that even more comfortably than it thought when it first carried out the test.
Now, one should note the provisos: the 2014 stress tests were not designed to simulate Brexit, even if there are some similarities. And the survival of the financial system is not the same thing as saying everyone would be OK.
Nonetheless, it is a reminder to those who seize on statements from the Bank of England or other organisations to promote project fear: beware the small print. It’s clear that the Bank believes Brexit would cause deep disturbances in the UK economy. However, it’s also clear that it believes those disturbances would not be totally crippling.