Was Bank of England's Governor Mark Carney right to speak his mind on the potential outcome of a UK vote to leave the European Union? I strongly believe so.
The BoE's Monetary Policy Committee said the June 23 referendum posed "the most significant risks to the MPC’s forecast".
A vote to leave the EU could materially alter the outlook for output and inflation, and therefore the appropriate setting of monetary policy. Households could defer consumption and firms delay investment, lowering labour demand and causing unemployment to rise.
At the same time, supply growth is likely to be lower over the forecast period, reflecting slower capital accumulation and the need to reallocate resources. Sterling is also likely to depreciate further, perhaps sharply.
This combination of influences on demand, supply and the exchange rate could lead to a materially lower path for growth and a notably higher path for inflation than in the central projections set out in the May Inflation Report.
This was the BoE's strongest warning yet of the risks in the June 23 referendum, according to Bloomberg.
Such straight talk provides a perfect role model for central bankers in many emerging and developing countries who have been struggling to talk openly about their forecast risks, partly to avoid ruffling politicians' feathers.
Carney's warnings, obviously, left the BoE open to criticism that it is not unbiased.
But Carney could not have sidestepped the issue and in my view he used the right words to defend the MPC's analysis, saying Brexit is the “biggest risk” facing policy makers' remit and the political choice would be to suppress it.
“This is the independent MPC looking dispassionately at issues in the fulfillment of its remit,” he said. “It’s better to outline those rather than for them to pop up and address them in real time.”
Keeping mum on what the central bank singled out as "the most significant" risk to its economic outlook would have been, in my view, far more irresponsible than speaking openly about the possible consequences of Brexit.