EU has increased 'openness and dynamism' of British economy, says Mark Carney


Being in the European Union has increased the "openness and dynamism" of the UK economy but has also left it more vulnerable to external financial "shocks", the Governor of the Bank of England has said.

Mark Carney said "in some respects" Britain has been the "leading beneficiary" of the freedom of goods, services, capital and labour that underpinned the economics of the transnational political organisation

But, in a speech in Oxford, he also warned that its openness "provides potential for both greater growth and shocks" and could act as "a dragging anchor when things go awry across borders".

His speech came as both the In and Out campaigns begin ahead of the upcoming referendum on Britain's membership of the EU.

The Confederation of British Industry (CBI) has said leaving the European Union in favour of a looser arrangement with Brussels would have "serious downsides", warning the majority of firms want to remain inside the 28-member bloc.

The CBI acknowledged there are downsides to membership and the EU needs reform, but it said the problems are "significantly outweighed" by the benefits of staying in.

Mr Carney called on the European Central Bank and eurozone members to make sure future steps to increase internal financial stability do not impede non-eurozone members of the EU, including Britain.

Delivering the Cairncross Lecture at St Peter's College Oxford, Mr Carney told the audience at the Sheldonian Theatre: "Overall, EU membership has increased the openness of the UK economy, facilitating dynamism but creating some monetary and financial stability challenges for the Bank of England to manage. Thus far, we have been able to manage those challenges.

"Our efforts have been helped by the strong domestic framework for financial stability that has been put in place post (global financial) crisis. Going forward, these should be further buttressed by an evolution of the EU regulatory framework that continues to work for all members of the EU.

"The increased resilience that brings is a necessary condition for dynamism. And a dynamic, resilient domestic economy will enhance the prosperity of the people of the UK and beyond."

Mr Carney added that the report was designed to show how EU membership affects the bank's role in achieving financial stability, adding: "It is not a comprehensive assessment of the pros and cons of the United Kingdom 'being in Europe'."

Mr Carney has downplayed the significance of his speech but his words will be carefully scrutinised for hints of any opinion on the issue of Britain remaining in the EU or leaving after more than 40 years.

He told the lecture audience: "In some respects the UK is the leading beneficiary of the famous 'Four Freedoms' first set out in the 1957 Treaty of Rome.

"These are the free movement of goods and services, capital and labour, enhanced over time through a range of measures to reduce impediments across the EU.

"So although the UK's dynamism is the product of many factors including deep human capital, well-developed physical infrastructure, a competitive fiscal regime and the rule of law; the EU has arguably bolstered it by establishing the world's largest single market with free movement of goods, services, capital and labour."

However, he also said that openness "has the potential to exacerbate existing distortions or inefficiencies".

He went on: "In times of euphoria, foreign capital can flood in and amplify domestic trends. The speed of its flight when passion turns to panic can then deepen the bust that follows the boom.

"Most obviously, openness ties the fate of trading nations together. That can mean a 'second engine' for growth from abroad. But it can also mean a dragging anchor when things go awry across borders."