The new governor of the Bank of England, Mark Carney, is already making his presence felt. Although he is relatively young, Mr Carney comes with a good pedigree. With a career that culminated in the post of Governor of the Bank of Canada from 2008 to 2013, he is also the Chairman of the Financial Stability Board. This is the international body set up to promote effective regulation and financial sector policies, and to coordinate the different national financial authorities and international standard setting.
In the UK, his announcements and intentions are all interesting, but contentious. We will be watching developments to see how his policies will end up affecting you.
The Base Rate
His recent statement that the base rate of interest is to be held at 0.5% until unemployment is reduced from its current 7.8%, to 7%, is a continuation of his policy of ‘forward guidance’, which he introduced in Canada in 2008. He believes it will give both mortgage holders and small businesses confidence about their debt management for several years, and therefore boost the economy.
It has, of course, elicited much criticism. He may or may not be able to carry it off, depending how inflation and other aspects go. His focus for our central bank is said to have swung away from the traditional one of controlling inflation, to an emphasis on growing the economy. His own predictions are that it might take about three years to create the 750,000 jobs needed to arrive at the 7% unemployment figure.
The Chief Economist at the Institute of Directors, Graeme Leach, certainly doesn’t agree that forward guidance will boost the economy. He believes that after ‘a moderate growth spurt over the next 12 months’ we’ll settle back to something like a GDP growth of below 2%.
Another worry is that it will encourage people to borrow more than is sensible. We will be happy to give you an independent opinion on how much debt your business finances can stand. Meanwhile, The Institute of Economic Affairs has suggested that Mr Carney is ‘playing with fire’, because inflation could run amok as it did in the 1970s, causing worse recession and having the opposite effect to the one intended.
Stance on Women
Speaking on BBC Radio 4’s Today programme, Mr Carney discussed the fact that there are no women on the Monetary Policy Committee. He said that the best female economists should be supported to develop all the way through the ranks. He will be encouraging female candidates for positions on the Committee and even for the post of governor when the time comes for him to step down.
Life at the Bank of England is not going to be boring under Mark Carney.