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 476.

    Thanks to all

    Some serious debate

    Allowed to flow

    Perhaps some interest expressed

    From the BoE?

  • rate this

    Comment number 475.

    Good = Getting rid of short-term uncertainty so businesses and consumers can plan ahead with some confidence.
    Bad = Throwing good money after bad, history repeating and lessons not learnt after the credit crunch.

    Rather than bouncing along at "0% growth" over the last few years, we should have realigned and allowed the bubbles to burst instead of artificially inflating them; growth would follow.

  • rate this

    Comment number 474.

    471-u think a lot of yourself,dearie.Who's referred to your ramblings?
    This Blog is about simple factual article about the new Carney forward-review policy and its benefits for all of us. It's also about a new Bank Gov who looks good and seems to be getting straight down to good work, The Blog is not about your postings , which are known on every BBC Blog and now shunned,eg ure ratings AGAIN :)

  • rate this

    Comment number 473.

    Shame on BBC, you should allow commets on ALL news issues, BBC should not pick as choose.

  • rate this

    Comment number 472.

    Eating the bankers would boost growth - for the poor people who their rotten PPI scams and their credit crunch have bankrupted. The bankers have done more damage to Britain and to Europe than the Nazis did and decent folk should see them as a threat every bit as evil.

  • rate this

    Comment number 471.

    Enlightening article about our new Horseman of the Apocalypse:
    "Mark Carney's False Ideology"

    Your obsession continues, as does your vitriol.

    468.Nowt as strange as folk
    Without me, your comment wouldn't be so popular me thinks ;)

  • rate this

    Comment number 470.

    #468: I see what you mean---and we all hoped she'd disappeared to her attic!
    Never mind, we're all aware by now of the sort of views , and we no longer take any notice or certainly not let them spoil Blogs. I see today's theme is "bubbles"---sort of fits in nicely with the stuff posted by that individual LOL !
    Carney , as you say, is looking good. I hope he fulfills all his obvious potential.GL.

  • rate this

    Comment number 469.

    Suppressed rates is price fixing, clear as day.
    The longer rates are fixed low by Mr Carney, the more bubbles there will be. The more bubbles and the greater their inflation, until they do as all bubbles do: burst!

    It's insane to re-inflate the property bubble. What happens to everyone who borrows to the hilt on these extremely low rates when they rise? Pop? How did 2008's crisis start Mr Carney?

  • rate this

    Comment number 468.

    Re 466---surprised you didn't mention that we have an "S-Alert" on this site: many postings: the usual !
    Carney seems like a breath of fresh air and the forward reviewing policy can only be helpful to everyone. A good bloke who we were lucky to get to come and fill the BoE hotseat.
    Hope RTS can deal effectively as usual with thye "S-Alert" :))))))))

  • rate this

    Comment number 467.

    "you & your family"

    So we shout, one side to the other of life's compound Wheel of Fortune, same voice - or voices of 'same' family - moved to shout in opposite favour as wheels within the Great Wheel turn, not realising our need to KNOW all are secure, for the present & the future, our children all to belong, employed as able, with equal 'votes' in steering the Great Wheel, the market

  • rate this

    Comment number 466.

    So,obviously NOT an article written by Ms Flanders who gives us the pretentious and incorrect stuff! A good factual article which tells it as it is. Of course,Carney is a good acquisition. Of course "forward-guidance" is a good thing, helping businesses & individuals to plan ahead. Of course the last sentence of the article is a good thing: if Carney can "snuff out" those institutions,then great !

  • rate this

    Comment number 465.

    463.A Wheel Busted
    And, what is your message for those of us who have consistently voted against insolvent economic polices, wealth redistribution, socialism, the nanny state etc... "Tough?"

  • rate this

    Comment number 464.

    Tionisia @462
    Within agreed "realities"

    Can we agree "resources" for all, our development as that of an embryo a mix of growth and regression, of absolutes and relativities, guided not directly by evolved DNA but crucially by the shared (necessarily equal) power of free individuals, free as equals not as dictators or gods?

    Why not?

    Just 'carrying on', extinction may be 'deserved'?

  • rate this

    Comment number 463.

    people who are complaining that their offspring will suffer in the future because of the low interest rates"tough"
    you voted for the feckless labour party to flood our country with migrants and borrow beyond our wealth and then sell off all our assets to Arab country's that now try to destroy us through jihads and stock market profiteering
    Now you and your family will reap the whirlwind

  • rate this

    Comment number 462.

    How about forgetting this eternal growth nonsense and instead concentrate on realities instead of the craziness that comes from obsessing with economics? Economics is supposed to be a tool for dealing with reality (organising resources) yet it gets treated as the other way around. No wonder we're in a mess.

  • rate this

    Comment number 461.

    Grounder @ 452
    Statistics as ever appreciated!

    Difficult enough in 400ch to express even 'one half of the brain', but both needed, of themselves and for each other. Some trust in 'statisticians' necessary, just as 'ordinarily' in Newton, aware though that at high political velocities there is a tendency to 'warp' - unless in equal partnership!

  • rate this

    Comment number 460.

    It might encourage growth but it will strongly discourage savings making the growing number of old people an increasing burden on the state. It will also strongly encourage reckless consumer borrowing and potentially a new credit crunch.

  • rate this

    Comment number 459.

    The UK was right with the industrial revolution and dominated the World...

    The UK was wrong to put all their money on the Banking sector and become a 2nd world country.
    Game Over...and still, they don't want the devil let stop, 3rd World country.

  • rate this

    Comment number 458.

    growth is falling no there ain't no nipples in the Irish sun newspaper
    that's it the country is doomed,no hot-blooded males to arrest now the boob 3rd page has been removed by the ever vigilant harpist protest,shame on you

  • rate this

    Comment number 457.

    The longer rates are kept low, the more bubbles there will be, and the more they will inflate until....... POP!!! Economic Armageddon!!!
    2008 wasn't the crisis, that was the picnic before the economic Sharknado hits us. And, it's getting closer every day.


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