Bank of England prepares contingency plans for EU vote

AP News
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Posted: Feb 23, 2016 11:57 AM
Bank of England prepares contingency plans for EU vote

LONDON (AP) — The Bank of England is preparing a contingency plan for the aftermath of Britain's referendum on European Union membership, Governor Mark Carney said Tuesday. But he said the central bank will not predict the likely outcome or economic consequences of a vote to leave.

Carney acknowledged that uncertainty about the outcome was fueling instability for the pound, as the opposing sides in the EU debate traded allegations about the economic impact of leaving, a prospect known as Brexit.

The heads of almost 200 firms warned in a letter to The Times newspaper that a British vote to leave the EU in a June 23 referendum would "deter investment, threaten jobs and put the economy at risk."

Signatories included CEOs at over a third of the FSTE 100 firms, among them Bob Dudley of BP, Royal Dutch Shell's CEO Ben van Beurden and Burberry CEO Christopher Bailey.

The chiefs of Heathrow and Gatwick airports also signed, but there were some notable absentees, including the bosses of retailer Tesco and Barclays bank.

The letter was organized with the support of Prime Minister David Cameron's office.

Cameron said Tuesday that a vote for Brexit would cause "big uncertainty for businesses."

"If you leave, you spend two years discussing the arrangements for leaving," throwing Britain's trade agreements into limbo.

London Mayor Boris Johnson, one of the most prominent backers of a "leave" vote, said many business leaders had also warned in the past of dire consequences if Britain did not join the euro single currency. Britain kept the pound, and avoided much of the turmoil in the eurozone in recent years.

Carney told Parliament's Treasury Committee that central bank policymakers were "not making a judgment about the potential outcome of the referendum ... or an assessment of the potential consequences of a leave vote."

He said he would outline the possible implications of a Brexit at a committee hearing on March 8.

Daniel Vernazza, an economist at UniCredit Bank said the Bank of England will be concerned with the impact of a Brexit on the banking system and the economy more generally and "will want to be prepared for this."

"It will look to mitigate the impact on the UK economy," he wrote in an email.

But Carney is unlikely to explain the contingency planning at the committee hearing.

"Don't expect much detail as it would be unwise to disclose contingency plans for fear that, in the event of Brexit, it becomes self-fulfilling," he said.

The looming June 23 vote has caused jitters for Britain's pound, which hit a seven-year low of $1.4058 Monday before rallying to just above $1.41.

Carney noted there had been an increase in demand for protection against falls in the pound.

He said the currency's volatility has "spiked to levels consistent with around the height of the Scottish referendum" on independence in 2014.