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
    0

    Comment number 156.

    70. Ichabod

    Not everyone in the public sector will get good pensions - with a five year salary freeze and a 1% raise this year, I cannot even AFFORD a pension.

  • rate this
    +8

    Comment number 155.

    "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."

    Yes, and the real economy is not the housing market. So will he advise banks to increase loans to businesses and concentrate less on mortgages?

  • rate this
    0

    Comment number 154.

    "Planning is good"

    J Stalin

  • rate this
    +7

    Comment number 153.

    @138

    I spent a year and half applying for jobs like that, I couldn't get accepted because I wasted too much time getting a PhD, which meant I was too old for apprenticeship and trainee jobs also over qualified and had no experience. I know dozens and dozens of people who would snap your hand off for a job like that. You are either in an area of high employment or are poorly advertising

  • rate this
    +1

    Comment number 152.

    Divots@104
    'Tories had to sort'
    Mugging Samaritans slap awake?

    We just might be back on highway, having 'done our best' to trash European markets: still with millions trapped in poverty; millions reduced to crawling, unemployed; millions staggering, Zero Hours insecure; even the fittest living either in fear & greed, or in sublime disregard of the future, of self, family, people & planet

    Thanks?

  • rate this
    0

    Comment number 151.

    Perhaps Mr Carney should have pointed out the type of growth he had in mind. He was of course a 'successful' banker.
    Could he mean growth in financial services?
    Transactions between;
    Leading British banks money laundering for international drug dealers,
    Tax evaders and their vile 'advisers'
    Providing 'financial services' to rogue states,
    Strengthening the link between tax havens and the City

  • rate this
    0

    Comment number 150.

    It may not boost economic growth but it will deffinately help the bankers screw us out of more cash. Lets just get the revolution over and done with.

  • rate this
    0

    Comment number 149.

    127.ihopethisoneworks
    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??
    --
    Good point. They may well be filled by non-UK people if not enough suitable UK nationals apply.

  • rate this
    +12

    Comment number 148.

    126.Matt
    --
    The vast majority of those people on less then £7.90ph will be claiming tax credits because the wage is unlivable. Tax Credits are paid for by the tax payer. So the likes of you (I assume you pay tax) are subsiding big companies who pay poor wages. Many of those same companies are tax avoiders. With your kind of short sightedness, it's no wonder people like me have to pay lots in tax

  • rate this
    +4

    Comment number 147.

    116.EastAnglian
    "Irresponsible borrowing comes ahead of irresponsible lending."

    ---
    What the "we saved for everything" brigade forget is that people had to save to buy things at one time because credit wasn't available like it is now. Mortgages could only be got on a 3 to 3.5 x salary basis IF the Building Society had funds. Even when credit cards came in, they weren't handed out like confetti.

  • rate this
    0

    Comment number 146.

    108. doug
    Real jobs - science, engineering construction etc and they don't pay above 25K

    There are thousands of skilled jobs in the UK paying large salaries £80 -200k. Its just that most people in the UK do not have the skills or qualifications to do the work. Employers struggle to find good people with rare skills,talent and experience.

  • rate this
    -1

    Comment number 145.

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

    You didn't say the 30-60k were Indian Rupees.

  • rate this
    +2

    Comment number 144.

    The strict control that the establishment has over our people and the way that we make our way in the world has me believing most sincerely that the whole rotten, self serving and corrupt establishment must go. Control over how much money we earn, how much we pay for goods and services. These are all methods by which we are controlled and oppressed.

  • rate this
    +3

    Comment number 143.

    127.ihopethisoneworks
    "two few semi/unskilled jobs for the demand."
    And too many of those filled by Eastern European slave labour, sorry, 'immigrants', living in barracks and working for effectively

  • rate this
    +1

    Comment number 142.

    138 steves
    Again print the link am interested

  • rate this
    0

    Comment number 141.

    @124 It's a shame that we have to wait another three months for the next quarterly report from the BoE. Their latest projections put GDP between 2% and 3% from the end of this year until three years hence. Let's see it forecast at between 2.5% and 3.5% in November and watch Mr Carney take the credit.

    Meanwhile, the guidance is very clear that 7% is a threshold not a target (and only temporary).

  • rate this
    -8

    Comment number 140.

    I would say the people who don't work for peanuts and get taxed like stupid and pay idiotic house prices or rent gone up....

  • rate this
    +10

    Comment number 139.

    We have seen the creation of 1.3 million new private sector job" - 80% of which pay less than £7.90p ph.

    -None of which have pensions attached and 80% of which require income support and the loss of 680,000 public sector jobs most of which paid over £7.90 ph didn't require income support and where the post holders paid into pensions.

    This is hailed by our deluded Government as a success.

  • rate this
    0

    Comment number 138.

    I have vacancies for 5 trainee fire alarm engineers. Been there for 3 months. No serious takers. One problem is that the number of people who don't want to work has gone up

  • rate this
    +1

    Comment number 137.

    Carney is proposing an interesting approach. However, he will being going forward with a ball and chain attached to his leg in the form of Cameron.

    Not that this is a comment from the left (it isn't) as the ball and chain could equally become Milliband!

 

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