Newly released transcripts reveal that former Bank of England Governor Mark Carney initially advocated for drastically lowering interest rates to near-zero following the 2016 Brexit referendum. This aggressive approach aimed to mitigate the anticipated economic shock, but Carney ultimately compromised to maintain consensus within the Monetary Policy Committee (MPC).
Carney’s initial proposal, revealed in minutes from the August 2016 MPC meeting, involved cutting the bank rate to either 0.10% or 0.05% from the prevailing 0.5%. This would have pushed borrowing costs as low as the Bank believed possible at the time – a level not reached until the pandemic. However, facing potential dissent within the committee, Carney conceded to a more moderate quarter-point reduction to avoid a deeply divided decision. The final decision saw the bank rate lowered to a then-record low of 0.25%, accompanied by a £70 billion injection into corporate and government debt purchases.
alt text: Image of former Bank of England Governor Mark Carney speaking at a podium
The transcripts highlight the significant internal debate surrounding the appropriate monetary response to the unprecedented Brexit vote. Several committee members, including Carney, favored a more forceful intervention. The minutes also reveal intriguing details about the atmosphere within the MPC. Members grappled with the momentous decision, invoking pop-culture references from The Shawshank Redemption and the Harry Potter books to articulate their perspectives. For instance, external member Kristin Forbes presented a replica of Hermione Granger’s “time-turner” necklace, symbolizing the desire to revisit the pre-referendum period. Then-Chief Economist Andy Haldane likened less impactful policy options to “taking that miniature rock hammer to dig your way out of Shawshank prison,” referencing the prolonged escape in the film.
Carney’s pre-referendum warnings of a potential Brexit-induced recession drew criticism from “Leave” campaigners, notably Boris Johnson, who accused him of “talking this country down.” While the UK avoided an immediate recession post-referendum, economic growth did slow in subsequent years as political wrangling over the Brexit deal ensued. The released transcripts provide valuable context to these events, demonstrating the depth of Carney’s concerns and his initial preference for a more dramatic monetary policy response. From March 2016, the minutes suggest a growing awareness within the BOE of Brexit’s potential economic threat, with Carney drawing parallels to the Ides of March and Calpurnia’s dream foreshadowing Julius Caesar’s demise.
The historical records underscore the transformative impact of the referendum on the UK’s economic outlook, solidifying the BOE’s assessment of Brexit as a significant risk factor. Following the vote, policymakers described a sense of being in a “different country,” grappling with their “limited” options to address the shock. “The past is another country and we are now in a rather different place, economically as well as politically,” commented then-Deputy Governor Ben Broadbent.
Carney, now chair of Brookfield Asset Management Ltd. and a board member at Bloomberg Inc., served as BOE Governor from 2013 to 2020. He is currently considered a potential successor to Justin Trudeau as leader of Canada’s Liberal Party.
The release of these transcripts offers valuable insight into the decision-making processes within the BOE during a pivotal moment in UK history. They shed light on the complexities and challenges faced by policymakers navigating the uncharted territory of Brexit’s economic implications.
