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
    +12

    Comment number 176.

    @146:

    Too many of the highly-paid allegedly highly-skilled jobs are for managerial positions, where all you need to get on is to spout the same bs as your peers. You don't need to understand the technicalities of what you're managing or be able to do any of it.

    The people doing the real work are never properly rewarded.

  • rate this
    +3

    Comment number 175.

    @166

    I'm not sure why people seem to think qualifications are good, I have a PhD in physics some was quantum mechanics, it was also the biggest waste of my time you could ever hope to imagine; If I could be transported back to being 16 I'd have done a carpentry of gas fitting apprenticeship. Those aren't skilled jobs, they're 'talking drivel' jobs, people fail in them the go elsewhere to fail

  • rate this
    +1

    Comment number 174.

    Grounder @141
    "7% is a threshold not a target"

    But IF unemployment ever again falls towards NAIRU, our supposedly necessary incentivising-the-workers "Non-Accelerating Inflation Rate of Unemployment", the OBR's "5.4%"…

    http://www.bbc.co.uk/news/business-23545881

    … will not 'the markets' (and their puppets) hanker for that little bit more of 'incentive', or even another 'spring cleaning'?

  • rate this
    +2

    Comment number 173.

    To link policy to the unemployment rate seems good in principle.
    However, IMO the rate is problematic at best in that it doesn't measure the "black" economy nor take account of all those zero rate contracts, or people not claiming unemployment benefits but nevertheless still unemployed.

  • rate this
    +8

    Comment number 172.

    how can you boost growth when people cannot afford to buy things? Or is there a difference between what those in power see as growth to what the ordinary people see.

  • rate this
    +2

    Comment number 171.

    I'm very pleased that this new fella's regime "should boost the UK's economic growth". Phew, what a relief.

  • rate this
    +1

    Comment number 170.

    GDP growth is anyway a joke as it is build completely on debt. It began in the 60ties when for any pound growth one pound debt where taken. Now we at a ratio 1:7.....the whole discussion about growth is actually complete nonsense...

  • rate this
    +6

    Comment number 169.

    One way to assure economic growth is to get the Tories out at the next election.

  • rate this
    +10

    Comment number 168.

    Do you think Carny will include the million people on 0 hour contracts when he calculates any future decisions? This could be a false boom rather than a real recovery, we are still borrowing and people are simply underemployed.

  • rate this
    +2

    Comment number 167.

    138.steves
    "I have vacancies for 5 trainee fire alarm engineers. No serious takers."

    --
    What do you mean by serious takers? What experience/qualifications are you demanding?

  • rate this
    -1

    Comment number 166.

    146OllyinLondon
    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.
    -
    Indeed. The problem is there are some 8 million under employed. Not everyone has a PhD in Quantum Mechanics, biochemistry or bull*

  • rate this
    +2

    Comment number 165.

    162.OllyinLondon
    "IKEA furniture isn't very good ... attempting to look affluent and failing."

    So we have an IKEA economy?

  • rate this
    -1

    Comment number 164.

    It's very well saying people want work...what are they doing about it?
    I work in financial services, we need people with maths, stats and general analytic skills. I get it that people want to drive vans and become an account administrator, but we got people with computing working on automating all that.
    People need more skills, jobs will come along as a result.

  • rate this
    +1

    Comment number 163.

    The politicians are now driving the policy, with Mr Carney only forward guiding us to were the politicians want the economy to go.
    R.I.P. an independent M.P.C.

  • rate this
    -3

    Comment number 162.

    158.Sine Wave

    IKEA furniture isn't very good and is more associated with working class people attempting to look affluent and failing.

  • rate this
    +1

    Comment number 161.

    149 Khuli
    the fact you haven't given a link to these jobs for me to look at must be because am black listed & therefore must be my fault,i can not think of any other good reason for you not doing so

  • rate this
    +9

    Comment number 160.

    Re 139 Steve

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

    And most of these jobs have gone to East Europeans whilst our young people are on the dole.

    This government (and the last) could not run the proverbial 'party in a brewery'.

  • rate this
    +21

    Comment number 159.

    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


    -Maybe they didn't hear the alarm,you need to get someone to fix that mate.

    650 People just applied for a single vacancy in Hull presumably you think the 649 who didn't get it are scivers who don't want to work!

  • rate this
    +16

    Comment number 158.

    I'm afraid that England has changed forever. So long as the "I'm alright Jack" brigade sleep soundly in their IKEA bedrooms and drive their 4x4 Audi's in peace, pretty much swathes of England are going to continue to decline through polarization of society. Unless you're prepared to stand up and vote against this continuum, expect it to continue.

  • rate this
    +1

    Comment number 157.

    Can you hear yourself, ihopethisoneworks (127)?

    You call for more 'semi/unskilled jobs' - ie those in which we have no chance of competing with the rest of the world. Amazingly, you say there are 'too many skilled jobs' - ie those where we can compete and which might even help to rebalance the economy.

    Get trained or give up (your choice), but don't try to turn back the clock. It can't be done.

 

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