No easy answer to the defining issue of Carney's time at helm
PUBLISHED: 07:00 02 November 2017
The Governor may not have wanted Brexit but it has dominated his years at the Bank of England, says ANGELA JAMESON. And a quick fix is beyond his powers
March 2019 and the Brexit deadline looms ever nearer. In the City, another 2019 countdown is also underway.
For June 2019 is when the current Bank of England Governor, Mark Carney, will leave these shores.
When Carney was appointed in 2013 by George Osborne he was the first foreigner ever to hold the position of Governor and his arrival was supposed to herald a new, less stuffy way of doing things. Or at least spread some celebrity central banker stardust in justification for the huge salary and housing allowance that was used to lure him.
Carney’s shtick was to begin a policy of forward guidance. He pledged to tell the investors and markets, as far as possible, what he was planning to do with regard to interest rates – the main tool he and the nine-strong Monetary Policy Committee have for tackling inflation.
As we crept out of the European economic crisis, it looked like interest rates would rise but then a collapsing oil price sent shock waves through global economies again and Carney’s signalled rate rises were never carried out. Carney was compared to an ‘unreliable boyfriend’ for sending mixed signals.
After four years in office, Carney now has form for teasing markets and quite a few commentators would say he actually made a mistake in August 2016 when he cut interest rates, following the referendum.
The cut exacerbated the impact of the already crashing pound and the decision contributed to the inflation that we are now seeing feeding through to goods in the shops. Since wage growth has not kept pace with inflation, many people are now feeling an income squeeze.
Carney’s attempts at forward guidance have mostly sown confusion and they have also limited his own effectiveness. In the run-up to this week’s Monetary Policy Committee meeting he gave so many heavy hints that rates were on the rise that not to do so would trigger alarm.
Carney’s views on Brexit have also been divisive and controversial, to many people, but particularly to Brexiteers.
He may see himself as a steely outsider who is merely relaying the facts, as most dispassionate economists see them – but to Leavers he is talking down the UK economy and contributing to the uncertainties that businesses feel.
In September, Carney warned that Brexit was a “unique example of deglobalisation”, that would damage the country’s trade and lead to higher prices, even after the impact of sterling’s fall has faded.
Apparently the Bank believes 75,000 jobs could be lost in the City if the UK walks away from the EU with no deal – a figure that is based on a report produced last year for City lobbyists.
But since Carney is associated with Remainers and the Project Fear case, his warnings have not had the impact that he might have hoped they would, at least on home turf. Increasingly he has held back from making frequent comments on Brexit – which has probably meant that the comments he does make are given even more weight.
With just 20 months left in the job, he will want to try and rescue his global reputation and probably has one eye on the next job. But it is far from an easy challenge.
As the Bank itself has said, inflation probably has further to climb. The weakness of the UK economy, in comparison to Europe’s, is also becoming more apparent.
The latest GDP figures were better than expected – showing that the UK economy grew 0.4% in the third quarter – but all things are relative.
Growth figures for the Eurozone, out this week, were much stronger. Spain, despite its own political crisis, posted a 3.1% GDP rate for the third quarter, while France achieved growth of 2.2%.
All in all, the UK economy is not yet in the sick bay, but it is showing signs of ailing and Carney has not turned out to be the financial wizard that the former Chancellor George Osborne presented him as.
Amid increasingly taut Brexit negotiations, an interest rise is unlikely to be kill or cure. For all the Governor’s desire to give markets clear signs of the Bank’s intentions, there’s no quick fix to the political and economic challenge ahead of us.