Governor Carney: Same remit, new ambition


Stephanie Flanders' expert analysis

Mark Carney confirmed this week that he was a good performer and a careful central banker.

But not that careful. You couldn't listen to his hours of testimony and not come away with the impression that he expects and wants the Bank of England to do more to support the recovery. Also, that he has in mind a longer list of potential tools than the current leadership of the Bank.

What kind of tools? There was a long list. But the larger point was that he thinks "doing more" means thinking beyond creating more money.

When pressed to say whether more quantitative easing would have the desired effect, the incoming governor said, matter-of-factly, that Bank of Canada research had concluded the policy was having diminishing returns, especially in the US. He added this was "not surprising".

Sir Mervyn King has been asked the same question, many times. He has never wanted to entertain the idea of diminishing returns to QE - or not without long and complicated caveats.

Dr Carney was also quite forthright about the potential usefulness of pre-committing the Monetary Policy Committee to keeping rates low for a certain period of time.

Most intriguing, perhaps, he also talked about linking policy explicitly to developments in the real economy: the unemployment rate, for example. He went out of his way to suggest that the Federal Reserve's experiment along these lines, started last autumn, might be relevant to the UK.

Again, Sir Mervyn hates all this. He thinks it's counterproductive for the Bank to tie its hands in advance, as the Bank of Canada did a few years ago. (The fact the Canadians later had to go back on that commitment might seem to help his argument.)

As for tying them to the unemployment rate, as the US central bank has done - well, you get the impression that Sir Mervyn and his deputies think that is downright potty.

All in all, I suspect the MPs felt they had received their due. Facing four hours of detailed questions, of varying quality, Dr Carney was respectful, but also confident. He did not fawn.

Do we know more about his monetary policy views than we did before? Yes we certainly do. In fact, we got 44 pages of them, before he had even sat down, in his written answers to the committee's pre-hearing quiz.

Radicalism constrained

The headlines from those answers were (and before you ask, I do realise they wouldn't be everyone's idea of a tasty news story):

  • He thinks the bar for changing the inflation target regime is very high, because this is the best system that central banks have ever tried.
  • He wouldn't favour raising the target from 2%, nor does he think a price level target would be remotely appropriate to the UK right now, because our inflation has been too high, not too low.
  • But he does think a debate about the UK monetary policy framework, and alternatives to it, would be helpful - provided it is resolved quickly, probably in favour of the current regime or something very close to it.
  • And yes, he does think the theoretical case for targeting the level of cash GDP, in the precise circumstances now facing the UK, is quite strong and worth debating.

But note that is a theoretical case. In practice, he made clear - in his written answers and his testimony - that he didn't think a nominal GDP target would trump the current system, even in the current climate.

That's for all the reasons discussed in my previous blogs on this, including the basic problem that the public might not be able to work out what on earth the Bank was up to.

Is Governor Carney going to drag the Bank of England kicking and screaming into the 21st Century and turn the UK monetary policy framework on its head?

My short answer to that is no, for the rather obvious reason that he's already the Governor of a G7 central bank whose approach and policy target is pretty similar to ours.

As he kept pointing out, there are also going to be constraints on his radicalism - not least the monetary policy framework itself, and all those other people on the Monetary and Financial Policy Committees. And he likes the inflation target the UK has now.

My slightly longer answer to the question is "no, but."

Listening to the future governor yesterday, I couldn't help thinking that he might change the attitude to economic policy in the UK, by reminding us that what we're living through is not just "exceptional" - a word he used a lot today - but worth getting worked up about.

Put it another way: he may have no burning desire to change the Bank's formal target, but you can't help thinking Governor Carney will raise the bar for the economy more generally.

Many in Westminster and beyond have started to think 1% growth in a year is a good result in an economy that is still 3% smaller than it was five years ago and in which nearly 20% of young people not in full-time education are out of work.

This isn't a party political point: it's a statement of fact. We have all got rather used to a flat economy. Any GDP number with a plus sign in front of it is starting to feel like an achievement.

The director of the IFS, Paul Johnson, said this week that we shouldn't lose our sense of "shock and awe" at what we've been living through. To judge by his testimony, Mark Carney hasn't lost it yet.

Perhaps he will conclude, like Sir Mervyn King, that there is not much that the central bank, or anyone else, can do to make this process of economic rebalancing any easier, or shorter. But he doesn't seem to be quite there yet.

We've spent months debating the finer points of Mark Carney's monetary policy philosophy and the difference it might make. We may have missed the most important thing separating him from every other senior policy maker in the UK, and the best reason for the chancellor to import him.

Governor Carney has not spent the last five years living in the UK; he's been living in a country that's been doing a lot better. That might end up making quite a difference.

Stephanie Flanders Article written by Stephanie Flanders Stephanie Flanders Former economics editor

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  • rate this

    Comment number 130.

    He has been employed to make out that the economy is growing.

    Should have employed me!
    I saw real green shoots this morning. Loads of them. Vigorous too.

    Shame they are on one of my rambling roses that I pruned right back last year.

    Perhaps that is Gideon's strategy. Viscous pruning back and hope.

    And Carney's strategy? Talk the talk and take the money.

    What else can we expect?


  • rate this

    Comment number 129.

    @126 Wolfie
    No! Not that word. Thought we'd seen it off. Forget exponential. Please don't use it in relation to economic growth.

    If we'd had exponential growth for any handful of years between 1997-2010 we'd be sitting in gold plated clover with the Luxembourgians, Swiss & Norwegians bowing at our feet!

    Wonder what's going on at Barclays?

  • rate this

    Comment number 128.

  • rate this

    Comment number 127.

    I wonder which side of the electrified fence Barclay's Tax 'Avoidance' (ha ha) sits - retail or investment?


    And I further wonder what the FPC (i.e the BoE) will make of it?

    I also wonder if it is just moving its domicile elsewhere? And how Carney will handle that as it moves to the quasi banking sector?

    These monsters have to be exterminated!

  • rate this

    Comment number 126.


    Thank you!

    We've created a financial system that has any kind of stability only in exponential growth

    It's a corrupt (forgive me for being judgemental) system that does no long-term good to anyone apart from bankers & financiers

    The UK has to some extent optimised itself to this system, growing finance, abandoning manufacturing

    Result, we're in the proverbial ...

  • rate this

    Comment number 125.

    @124 stevie
    At least half the world's economy is doing quite nicely. Our problem is that we are not fit to join in.

    The guys running the Boot Camp have not only gone soft on their proposed regime, they are sneaking off to the diner & bar, taking most of the squad with them to squander some more.

    Tomorrow, when the hangover wears off .....

  • rate this

    Comment number 124.

    Surely it's all about being in the right place when the world economy picks up. Carney will have very little to do other than pander to the chancellor and will probably make little practical difference other than to take a few million quid in wages over the five years.

  • rate this

    Comment number 123.

    @122 Wolfie
    I'll agree with you.

    Not least because the word sustainable is there and to sustain zero growth and static debt as you point out is impossible with the word debt there. But take it away and zero growth is still unsustainable anyway unless you stop people dying and having babies ..
    ... or you put in all sorts of artificial controlling inputs.

  • rate this

    Comment number 122.

    121 oldgrizzly

    Many will disagree with me, but I assert that '...sustainable, zero growth, static debt ...' isn't a stable solution in our present money sytem. Most of our money is debt on which we have to pay interest. Even if we earn the money we use to pay the interest, someone else borrowed it. Result: ever growing debt (& ever richer bankers).

  • rate this

    Comment number 121.

    I would like a go on the Economy Simulator computer in the cellar of the BoE, to see what an indefinitely sustainable balanced economy with zero growth, zero inflation and static or falling Debt really looked like. I call it living within our means. I doubt we would like the brutal truth. A minimum 45 hour working week for 25% less income, and work until 75 maybe?

  • rate this

    Comment number 120.

    '...longer list of potential tools...' - I let us know what they are. Whatever quantity he choses to target, I thought he had only one tool to use. And that, metaphorically, is hard to lift, dificult to aim and impossible to judge from what height it should be dropped (onto some parts of bankers' anatomy).

    But, if he'd like to do some creative thinking on the financial system - forgot, he's GS

  • rate this

    Comment number 119.

    113.watriler "He (Carney) will expertly twiddle with the money supply and make sure the banks dont play lose and fast with the economy ever again"

    The 'evidence' is against your assumption. See Canada, and the word 'expertly' that you use is I presume an oxymoron and a jest!

    Carney is a banks' man through and through and the evidence is that he will sacrifice us all to save his banking friends.

  • rate this

    Comment number 118.

    28. treacle_01

    "Non-doms pay UK tax on all UK income.
    They don't pay UK tax on non-remittrd foreign income"

    unless paid through a "consultancy" "business" in the Isle of Man/Jersey/Guernsey/Cayman/Luxembourg etc etc.. in which case they pay income tax in that jurisdiction. NI contributions are paid locally.

  • rate this

    Comment number 117.

    Does this look like more fingers-crossed and golden parachutes all round?

    Whichever you look at this it does come down to de-regulation, and lack of enforcement by regulators that were basically owned by the banks; as are the Credit Raters and the big 4 auditors.

    It does all come back to fraud by banks, with our money, who then demand more that doesn't belong to them either. Theft with menace.

  • rate this

    Comment number 116.

    What you have failed to mention is that keeping interest rates low really entails more QE at least "open market operations" where the Bank of England creates money and buys government debt (the same thing as QE under a different name). Otherwise there is no way interest rates on bonds and also the BoE interest can be kept low. So we can look forward to a lot more devaluation.

  • rate this

    Comment number 115.

    Same old neo-lib laissez faire failed rubbish... no change here, which is... interestingly... what most of the general populace will have in their pockets unless a different approach is tried.

  • rate this

    Comment number 114.

    Most people on here correctly cricitise the useless BoE but words are useless all the government will understand is action. All those savers complaining about low interest rates should take their money out of the banks, that would really scare the BoE, otherwise the Establishment is just laughing all the way to their tax havens

  • rate this

    Comment number 113.

    Mr Carney could do no better than turn round to Osborne and tell him to manage the economy and not out source it to the BoE and the MPC. He (Carney) will expertly twiddle with the money supply and make sure the banks dont play lose and fast with the economy ever again.

  • rate this

    Comment number 112.


    So you do not believe in people taking out a mortgage to uy their house, but rather they should save up the money, despite having to pay rent in the meanwhile meaning they'll never save enough...???

    There is nothing wrong with borrowing to spend if you inest wisely......

  • rate this

    Comment number 111.

    Sadly both Central Bank and Financial world are divorced from the real economy.

    The real economy does not think Tomorrow I will buy a house because mortgage rates are at 3%

    Any smart person would be thinking what happens when interest rates go up to say even 5% monthly interest only repayments almost Double

    You get the picture Prices to high


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