EU membership and the Bank of England

Author (Corporate)
Publication Date 21/10/2015
Content Type

This report analyses how membership of the European Union (EU) affects the Bank of England’s ability to fulfil its mission to promote the good of the people of the United Kingdom by achieving its statutory objectives. Parliament has mandated the Bank to maintain price and financial stability, promote the safety and soundness of PRA-authorised firms and contribute to securing an appropriate degree of protection for insurance policy holders. Subject to achieving those primary objectives, the Bank’s statutory policy committees have secondary objectives to support the economic policies of the government, including its objectives for strong, sustainable and balanced growth. In addition, the PRA must, so far as is reasonably possible, facilitate effective competition in the markets for services provided by PRA-authorised firms.

There are three ways in which EU membership affects the Bank of England’s objectives:

- 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.

- Second, increased economic and financial openness means the UK economy is more exposed to economic and financial shocks from overseas. In recent years, as a result of closer integration with the EU and, more recently, with the euro area, this may have increased the challenges to UK economic and financial stability;

- Third, EU regulations, directives and rules define many of the Bank of England’s policy instruments particularly in relation to financial stability. These must be sufficiently flexible and effective to manage the consequences for the United Kingdom of shocks originating in both the domestic and global economy and financial system.

There have been a number of previous assessments of the impact of EU membership on the UK economy. These studies produce a wide range of estimates by using different analytical approaches to compare the status quo of EU membership with hypothetical cases in which the UK either was not a member of, or had a different relationship with, the EU. That is not the focus of this report, which concentrates on the overall impact of EU membership on the Bank’s objectives.

However, most news commentators suggested that the Bank of England had concluded that that EU membership had opened up the UK economy and made it more dynamic, but also that it had left it more exposed to financial shocks.

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Related Links
Bank of England: Speech, 21.10.15: The European Union, monetary and financial stability, and the Bank of England - speech by Mark Carney
Blog: Open Europe, 21.10.15: Bank of England wades (tentatively) into EU referendum campaign
BBC News, 21.10.15: Bank of England says EU makes UK economy more dynamic
The Guardian, 21.10.15: EU has made UK economy more dynamic, says Bank of England chief
Politico, 21.10.15: Bank of England chief: Brexit harms Britain
EurActiv, 20.10.15: Bank of England's Carney to spell out Brexit risks
Blog: UK in a Changing Europe, 22.10.15: The Bank of England’s EU analysis: free movement and immigration
The Telegraph, 22.10.15: Lord Lawson accuses Bank of England Governor of wading into the EU debate
Blog: NIESR, 22.10.15: The Bank of England's EU analysis: free movement and immigration
EurActiv, 22.10.15: Mandelson: Brexit renegotations would take ‘up to 10 years’

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