Carney warns Scots over currency union

A clock is pictured next to the Bank of England in the City of London on August 19, 2014. Britain's 12-month inflation slid to 1.6 percent in July from 1.9 percent in June, official data showed on August 19, easing pressure on the Bank of England to raise rates. The Consumer Prices Index (CPI) inflation measure headed back towards May's figure of 1.5 percent, which at the time was the lowest level for four and a half year years. The Office for National Statistics said that falls in clothing prices provided the largest contribution to the fall in the rate. AFP PHOTO / CARL COURT (Photo credit should read CARL COURT/AFP/Getty Images)©AFP

The governor of the Bank of England has warned that a currency union between England and an independent Scotland would be “incompatible with sovereignty”.

Mark Carney cited the problems with the eurozone as he told the TUC Congress in Liverpool on Tuesday that all three main parties in Westminster had ruled out currency union between an independent Scotland and the rest of the UK.

He said that there had to be three successful components to a successful currency union.

These were the free movement of goods and services across the different parts of the currency, a banking union underpinned by common institutions such as a central bank, and elements of shared fiscal arrangements.

“You only have to look across the continent to look at what happens if you don’t have those components in place,” he said. “A currency union is incompatible with sovereignty.”

In a speech in January, he said that sharing the pound between an independent Scotland and the rump of the UK needed careful consideration but was essentially a matter for both parliaments.

His new comments are likely to be seen as a significant hardening of his position against sharing the currency.

The subject of currency has been a political battleground after George Osborne, the chancellor, said earlier this summer that an independent Scotland could not keep the pound.

That position has been backed by both Labour and the Lib Dems – prompting a furious reaction from the Scottish National Party.

SNP leaders have refused to offer a “Plan B” alternative to a continued formal currency union and say that the Westminster parties’ position is tantamount to “ganging up to bully Scotland”.

Mr Carney also told the TUC audience explicitly that “you can expect interest rates to begin to increase”.

“Our latest forecasts show that, if interest rates were to follow the path expected by markets – that is, beginning to increase by the spring and thereafter rising very gradually – inflation would settle at around 2 per cent by the end of the forecast and a further 1.2m jobs would have been created,” he said. “In other words, we would achieve our mandate.”

Sterling initially climbed 0.3 per cent against the dollar before easing back to stand 0.2 per cent higher at $1.6129. The pound climbed 0.2 per cent to £0.7989 against the euro. Trade weighted sterling was up 0.1 per cent to 86.4.

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