Mark Carney has moved to remind policymakers across the UK that the Bank of England has limited influence on tackling core economic challenges, including Brexit.
In an introductory speech at an event marking 20 years since the Bank was granted independence from Government control, its governor warned the Bank alone “cannot solve broader societal challenges”.
He told an audience in London, which included Prime Minister Theresa May: “This bears emphasising because in recent years a host of issues have been laid at the door of the Bank of England from housing affordability to poor productivity.
“Calls for the Bank to solve these challenges ignore the Bank’s carefully defined objectives. And they confuse independence with omnipotence.”
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He added that most of the “necessary adjustments” in light of Brexit are “real in nature” and therefore “not in the gift of central bankers”.
He said the Brexit issue was the dominant force currently and UK prosperity would ultimately reflect the final divorce deal agreed with Brussels and Government tax and spending plans at the time.
The Bank has policy tools at its disposal which are aimed at meeting a target for inflation of 2%.
A surge in inflation this year to a current level of 2.9% – linked to the collapse in the value of the pound in the wake of the EU vote – has put Mr Carney’s monetary policy committee (MPC) under pressure to raise interest rates in response.
The Bank, which had feared recession in the event of a Leave win, cut rates in August last year to 0.25% to support activity in the economy.
A reversal of that decision has been a move that a majority on the MPC has been reluctant to make so far for fear of choking weaker economic growth further.
But Mr Carney signalled last month that a rise was “likely” this year – possibly in November – if inflation pressure caused by rising import costs intensified.
Expectations for the first hike in a decade intensified when the Bank’s chief economist, Andy Haldane, used an interview with Sky News on Wednesday to insist that Britons should not fear rate rises.
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The Bank has regulatory powers to work alongside its monetary policy role.
A major area of concern for it has been that lenders have repeated mistakes of the past and presided over unsustainable levels of unsecured debt on things such as credit cards and car finance – risking financial stability.
It warned on Monday the sector currently risked losses of £30bn in the event of a sharp economic downturn and ordered it to hold an extra £10bn aside as an insurance policy.
Mr Carney told his audience on Thursday the Bank of England would ensure “banks will be capitalised so that they can withstand any severe shock that could be associated with Brexit – however unlikely – and still meet demand forcredit.”