A Brexit vote is the 'biggest domestic risk' facing the UK economy, the Bank of England Governor warned today but he faced accusations he was making 'speculative' pro-EU claims.
In an almost three hearing with MPs today, Mr Carney insisted he was choosing all of his words carefully and said the Bank was neutral on the referendum question.
But Eurosceptic Tory Jacob Ree-Mogg blasted the Governor for making pro-EU statements that were 'beneath the dignity' of his office.
Jacob Rees-Mogg, left at today's hearing, accused the Governor of using language straight out of the In campaign's playbook. Mark Carney, right today, denied the charge and insisted he was 'careful' with words
Today's hearing took centre stage in the increasingly angry EU referendum campaign as Mr Carney was pressed for the Bank's view
Mr Carney hit back later in the session, claiming the North East Somerset MP had a 'selective memory'.
The crucial moment came in the final minutes of the treasury select committee hearing when chairman Andrew Tyrie pressed Mr Carney on whether Brexit would amount to a 'profound economic shock' to Britain, as claimed by Chancellor George Osborne.
Mr Carney said: 'The issue is the biggest domestic risk to financial stability.'
The Governor said Brexit was a 'known risk' to the markets and was not of the same magnitude as global risks such as a Chinese slowdown.
He warned: 'It has some potential to amplify pre-existing risks to financial stability.'
GOVERNOR: BREXIT CALL BY BORIS HELPED SINK THE POUND
Boris Johnson's Brexit declaration 'concentrated minds' in the currency markets
Boris Johnson's declaration for the Out campaign may have driven a slump in the pound, Bank Governor Mark Carney has suggested.
The London Mayor finally declared for Brexit in a doorstep press conference a day after David Cameron formally fired the starting gun on the referendum.
The value of sterling fell in the early stages of the campaign and financial analysts have warned the pound could fall to 'parity' with the euro after a Brexit vote.
Asked whether the London Mayor's announcement had an impact, he replied: 'The combination of having the agreement, and therefore a date for the referendum, and the tangible evidence of a campaign in favour of Leave with credible politicians as part of that - not least represented on this committee - concentrated the minds.
'I know that seems a bit odd that sometimes financial markets ignore an issue until there are focal points that make it more tangible, but this is what happens time and time again.
'It was a combination of events that focused minds.'
Mr Carney said the moves in sterling were 'relatively large' but 'not unprecedented'.
Speaking very slowly as he considered his words, Mr Carney added: 'The issue is the biggest domestic risk to financial stability because, in part, of the issues around uncertainty.
'But also because it has the potential - depending on how it is prosecuted and these issues can be addressed - to amplify risks around the current account, potential risks around housing, potential risks around market functioning we are trying to mitigate.
'Also associated risks with respect to the euro area.'
Ahead of the evidence session, Mr Carney said in a letter to the committee the deal secured by David Cameron on Britain's EU membership 'addresses' the concerns of the Bank around the eurozone.
The Governor insisted the Bank was neutral on the referendum question and warned there were risks on both sides.
But the eueosceptic Conservative MP Jacob Rees-Mogg blasted the approach in an exchange about the benefits of the single market on Britain.
Mr Carney insisted: 'There is a reason why a substantial proportion more global banks, more internationally active banks are head quartered in London than any other European country or all other European countries combined.
'That's partly because of the cluster of expertise that it here but also in many cases... that is because of the passporting ability of this economy in terms of the activity.'
Mr Rees-Mogg said: 'This is what I think is doing your reputation and the reputation of the Bank of England harm - you are coming out with the standard statements of the pro-EU group.
'The statements you make about the dynamism of the economy could just as well refer to reforms introduced by Margaret Thatcher.
'It is speculative and beneath the dignity of the Bank of England to be making speculative pro-EU comments.'
Mr Carney insisted: 'I'm not going to let that stand.'
The Governor said he was confident in his assessment of the implications of the EU single market.
He continued: 'What you see... is the growth of UK trade with the rest of Europe is arguably - not conclusively but arguably - because of the single market is greater.'
The two men renewed their clash at the end of the session when Mr Rees-Mogg insisted Mr Carney had only focused on the 'positive' aspects.
The Governor insisted this was 'entirely unfounded'.
The Bank of England's conclusions on Mr Cameron's EU deal, pictured, accept it 'addresses' the concerns of the Bank surrounding the 'further integration of the euro area'
Mr Carney insisted the language used in his reports was 'careful'.
Committe chairman Andrew Tyrie joked that the long pauses as Mr Carney chose his words could have paved the way for an alternative career as a 'bomb disposal expert'.
Elsewhere in his evidence, Mr Carney said EU membership 'reinforces the dynamism of the UK economy'.
But he also warned the unfinished monetary union - the rules around the euro currency - represented a risk of staying in.
Treasury select committee member John Man claimed Mr Carney had been 'reliant on fear factor' during his evidence to the MPs today
Conservative MP Kevin Hollinrake picked up on Mr Carney's evidence that banks based their businesses in London because of the advantages of the EU
Mr Carney said the City of London would 'without question' lose business if it failed to negotiate the continuation of existing mutual recognition agreements within the financial sector following a vote for Brexit.
He warned that negotiations of this kind 'in general take a very long time to achieve' and may involve ceding some measure of the UK's sovereignty.
Mr Carney's letter to the committee said: 'The Settlement addresses the issues the Bank identified as being important, given the likely need for further integration of the euro area, to maintaining its ability to achieve its objectives.'
It added: 'It makes clear that the UK retains responsibility for supervising its financial stability, financial institutions and markets as well as maintaining responsibility for the resolution of failed financial institutions within its jurisdiction.
Ukip MP Douglas Carswell was last night critical of the Bank's announcement it would provide finance around the referendum to ensure stability
'At the same time, it acknowledges the existing powers of the Union to take action that is necessary to respond to threats to financial stability.'
Pressed on whether Downing Street had any involvement in the positive tone of the letter, Mr Carney dismissed the notion out of hand.
He said: 'We are expressing views that are the views of the institution. We are not leaned on by anybody.
'It would have no effect if they did.
'To be absolutely clear, we are choosing our words carefully.'
The Prime Minister's spokeswoman said: 'It's for the BoE to consider what measures they should take with regard to the financial stability of the UK economy. The Prime Minister is very clear on the reasons why we should remain in the EU...
'We've heard the Prime Minster and the Chancellor talk about the risks that there would be of leaving. An EU exit would be a profound economic shock. We are going to focus on making the case for remaining in the EU.'
The Bank of England was last night accused of scaremongering after offering emergency cash to Britain's biggest lenders ahead of the EU referendum.
In an unprecedented move, the central bank announced it is taking extra precautions to ensure the June 23 vote does not spark another banking crisis.
In a statement issued after markets closed yesterday evening, it said it will offer extra loans to banks and building societies so they can protect themselves against turmoil on financial markets.
Douglas Carswell, MP for Ukip and a prominent member of campaign group Vote Leave said: 'We can now see vividly that the big corporate banks and the Bank of England are aligned with Project Fear.
'We know the banks got massive bailouts and we know the Bank of England gives cheap credit subsidies to the banks.
'Now we know that in the run-up to the referendum banks will be given even more access to easy money.
'This is cronyism and collusion between vested interests in government and vested interests in big corporate banks.'
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