Bank of England warns of Brexit risks, angering eurosceptics

LONDON (Reuters) - Bank of England Governor Mark Carney said on Tuesday a vote by Britain to leave the European Union could hit the country’s $2.9 trillion (£2.04 trillion) economy and prompt some banks to move away from London’s global financial powerhouse.

In his strongest intervention so far in the politically charged debate about Britain’s EU referendum, Carney said he was not making any recommendation about how to vote.

But his comments, in an often heated exchange with eurosceptic MPs, are likely to be welcomed by Cameron who is battling to swing voters behind the “In” campaign.

Britain is due to vote on June 23 on whether to remain in the bloc, raising the possibility of years of uncertainty for the world’s fifth-biggest economy if it decides to leave.

Last month, Cameron asked the Bank to set out “the facts” about Britain’s EU membership.

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Carney said the Bank would not assess the long-term implications of the referendum for the economy. But a vote for Brexit, as leaving is widely called, would deliver a short-term hit to growth and sterling, and foreign investment would probably also diminish.

Asked about the implications of an exit for Britain’s huge banking industry, Carney said some big financial firms might move business out of Britain if the country did not secure the same kind of access it currently has to the EU. That kind of negotiation could take “a very long time”, he said.

“One would expect some activity to move,” Carney told MPs in the parliament. “I’d say a number of institutions are contingency planning for that possibility.”

Carney, a Canadian, has sought to avoid giving explicit support for either side of the referendum battle.

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But a BoE report last year that highlighted benefits to Britain’s economy from being in the EU was attacked as political interference by some “Out” campaigners.

Jacob Rees-Mogg, a member of the ruling Conservative Party, said on Tuesday it was “beneath the dignity” of the Bank to make “speculative” comments about the benefits of EU membership and that Carney was damaging the Bank’s reputation.

In 2014, Carney made comments that put the economic implications of Scottish independence high in the minds of voters who decided to remain in Britain at a referendum.

Speaking on Tuesday, Carney recognised there were risks from remaining inside the EU due to the greater integration planned by the 19-member euro zone. But he praised a deal struck by Cameron last month that set out the terms of Britain’s membership of the EU, saying it would help the Bank do its job.

Additional reporting by UK bureau, writing by William Schomberg, editing by Guy Faulconbridge and Jeremy Gaunt