Mark Carney says forward guidance should boost economy

Mark Carney Mr Carney took over as Bank of England governor in July

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New Bank of England Governor Mark Carney has said that his new regime should boost the UK's economic growth.

He told the BBC that keeping interest rates at the current level until unemployment fell below 7% was expected to boost the economy by "more than half a percentage point of GDP".

But he warned that this prediction should be taken "with a grain of salt".

He also told the Today programme it was "striking" that there were no women on the Monetary Policy Committee (MPC).

The MPC is the committee at the Bank of England responsible for setting interest rates.

Mr Carney said that while he was not responsible for appointing members of the MPC, it was important to "grow top female economists all the way through the ranks", so there would be more female candidates for MPC positions and qualified candidates to be a future governor.

Mr Carney has taken up his position as more and more data on the UK economy shows it is picking up steam.

On Thursday, the Organisation for Economic Co-operation and Development (OECD) said the recovery was "firming" in June.

Recent figures have shown activity in manufacturing, services, construction and the housing sectors all gathering pace.

On Wednesday, the Bank of England revised its forecast for economic growth this year up from 1.2% to 1.4% and for next year from 1.7% to 2.5%.

'Considerable number'

On Wednesday, Mr Carney gave his first news conference since taking over at the Bank of England, setting out his new regime of forward guidance.

Under this system, the MPC will not consider raising interest rates until the unemployment rate falls below 7%, which he predicted would take about three years and the creation of 750,000 jobs.

There are get-out clauses in this policy if there are threats to financial stability or a danger of inflation getting out of control.

Mr Carney said that Bank of England economic models had assessed the differences between what would happen with current market interest rates without the forward guidance and "what would happen if interest rates stayed at the same level until effectively that [7%] unemployment threshold was reached about three years from now".

"It's more than half a percentage point of GDP... which is a considerable number," he said.

He added that "as with any economic prediction you have to have some humility so take all of this with a grain of salt".

The US Federal Reserve and the European Central Bank have already provided forward guidance on their interest rate policies.

Prime Minister David Cameron was asked on BBC Breakfast where he thought the extra 750,000 jobs would come from.

"We have seen the creation of 1.3 million new private sector jobs over the last three years and they're going to come from the private sector," he said.

"We need to encourage small businesses to take people on. We need to, as we are, back apprenticeship schemes and things like that, so I'm confident the jobs will be there."

'Socially useless'

Mr Carney also stressed the importance of banks lending to businesses and creating jobs.

"The focus [of a bank] has to be on the real economy - what it does for businesses making investments, what ultimately it means for jobs in the economy, and it's the loss of that focus… that becomes socially useless."

Asked about financial institutions selling products to people who did not need them, Mr Carney stressed that such behaviour would be in the remit of the financial conduct authority.

But he added: "It's that attitude in institutions that undercuts their effectiveness, is bad for the system and to the extent that, with our powers we can… we'll work to snuff them out."


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  • rate this

    Comment number 136.

    So the new plan is just the same as the old plan that didnt work!!

  • rate this

    Comment number 135.

    So much for it being great to be a Baby Boomer!

    In the 1980's (when we had no money) we had to endure 15% interest rates on our mortgages whilst Mrs Thatcher, did her monetarist experiment and now we have some savings The Bank of England denies us the chance to get some return on 40 + years of hard work.

    What's the expression ? - "Life's a bitch and then you die".

  • rate this

    Comment number 134.

    I really do think that in order for us to return to growth and do it in a manner that will benefit us all not just the city of London and make it long lasting is for Mark Carney and the BOE board and the FTSE top 100 COE's to do a tour of the UK, visiting both the city and the rural areas both rich and poor, because he is Canadian he my be able to read a balance sheet but not the country.

  • rate this

    Comment number 133.

    The only growth we'll see in the UK under Carney will be in the financial sector. As for the working and middle class what we can expect is a freeze in wages and our debts to get bigger.

  • rate this

    Comment number 132.

    We do not have to put up with saving accounts paying less (after tax) than the RPI.

    Just close these under performing accounts.

    There are plenty of other ways of getting an honest and much better return on our investments.

    EG. PV panels amongst others.

  • rate this

    Comment number 131.

    We have had 5 years of low interest rates and shovelling money down the Fat Cats & Bankers throats and its got us nowhere.
    What Planet as Carney been on.
    Just another overpaid Foreigner who as no National interest if Britain sinks or swims.

  • rate this

    Comment number 130.

    If you pay 60% for living there is not much more to spend....

    Unless you're gordon brown in which case there's still 250% left to spend

  • rate this

    Comment number 129.

    It will boost Cameron/Osbournes chances of a small majority by shoring up their seats in the South & meaning that will probably take 20 or so Lib dem seats. Job done Mr Carney then. The problem will come after the next election when interest rates have to go up fast it will be carnage don't know about Carney. Housing bubbles are always bad news.

  • rate this

    Comment number 128.

    Forward guidance is fine, but any policy will need to be "signed off" by the politicians.
    So any policy will now be driven by politics rather than economics.
    With the politicians in the driving seat, then a further devaluation in Sterling, and a hike in inflation target will be impossible for the Treasury to resist.

  • rate this

    Comment number 127.

    Real jobs are not being created now,

    The company I work for currently has 24 jobs advertised in the UK paying 30-60k, so I'd say you're wrong.

    The problem is is there are too many skilled jobs which can't be filled and two few semi/unskilled jobs for the demand. Will all of those 24 jobs be filled by UK nationals? Or be filled at all??

  • rate this

    Comment number 126.

    @37 So 80% of all jobs created are paid less than £7.90 ph?

    So they're above minimum wage.

    You now have a job when you didn't before. Stop complaining.

    If less than £7.90 an hour isn't enough to maintain your current lifestyle, tough. And THAT is the reason people are whining about it.

    At least you have a job. Now you can't binge on cigarettes and clothes? Aww, boo hoo.

    Reality check.

  • rate this

    Comment number 125.

    Irresponsible borrowing comes ahead of irresponsible lending.
    It's chicken and egg. Once glass-steagall was repealed everyone wanted a sniff , the amount a person could borrow sky rocketted; swiftly followed by property prices. In that case irresponsible lending was the catalyst, those who left out of school/uni in the mid 00's had to jump on the bandwagon or live at home

  • rate this

    Comment number 124.

    This just goes to show the mentality of the Goldman Sachs employees,because he say's it,it must put 0.5% on GDP,were if he said nothing???
    If employment falls below 7% up interest rates,bankrupty many,raising unemployment,then when it fall s below 7% again,raise interest rates bankrupting the next batch & so on
    This only tells us that 7% unemployment is a fixed rate

  • rate this

    Comment number 123.


    Thats easy create 750000 jobs on zero hours contracts , job done ! !
    Create 75,000,000 jobs on zero hour contracts and not only would they boast about eradicating unemployment, but they'd have created jobs for our grand children too!

  • rate this

    Comment number 122.

    The only job I've been offered this year is to go into UK companies and show them how to outsource all their IT and Computing to India! A real job getting rid of numerous real jobs! I declined, however I'm sure somebody needs the work!

    Post-Industrial society here we come!

  • rate this

    Comment number 121.

    108. doug
    Real jobs - science, engineering construction etc and they don't pay above 25K
    Utter nonsense. Even without a PhD I'm closer to £40K as a research scientist. My brother-in-law has a degree in naval architecture (makes parts for nuclear subs) his pay is nearer £80K. £25K is a starting salary for a science post doc. Check the vacancies page for your closest Russell league uni.

  • rate this

    Comment number 120.

    Another quick fix by debt.....
    As long as the rental market does not get a proper review (longer contracts) and the house prices come down another 50% (to the real value)the UK will go nowhere....
    If you pay 60% for living there is not much more to spend....

  • rate this

    Comment number 119.

    You know, the more I think of Carney as Baldrick to Cameron's Black Adder the more frightened I become O.O

  • rate this

    Comment number 118.

    Thats easy create 750000 jobs on zero hours contracts , job done ! !

  • rate this

    Comment number 117.

    16.Adrian Montagu

    "...should boost the economy"


    Have a look at the Probability Distribution Table for CPI Inflation and GDP Growth based upon 0 rates versus stable 0.5%. Because you won't bother I will tell you that a stable 0.5 will provide for an average 2% [target] growth rate into 2017, which will allow for commercial borrowing, increased employment, and growth.


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