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Mark Carney defends Bank of England at House of Lords – as it happened | |
(35 minutes later) | |
5.57pm BST | |
17:57 | |
Carney has now finished so here are some of the key points. | |
In the wake of criticisms from various politicians, he said investors would want a “risk premium” to buy UK assets if the Bank’s independence was questioned. But markets should not expect this to happen. It was up to the government to set a target for price stability which the Bank would then decide how to reach. | |
On his own future, he said it would be a personal decision as to when he would step down from the Bank and not related to politics. | |
Sterling’s recent slump had less to do with monetary policy, he said, and more to do with the announcement of the timetable for Article 50 and the market’s perception of how discussions on Brexit would unfold. | |
He said there were various contingency plans in place for banks to leave London if they saw fit. | |
On QE he expressed sympathy for savers who have been hit by the programme, but said the Bank was not slavishly relying on QE. | |
He defended the Bank’s purchase of corporate bonds, including McDonald’s. | |
On negative rates, he said there was something unnatural and a confidence effect. | |
Meanwhile the pound has recovered some ground after its earlier sudden slump, which was blamed variously on the strong dollar, comments from chancellor Philip Hammond suggesting more QE and nervousness ahead of Carney’s appearance at the House of Lords. | |
It is now down 0.3% at $1.2195 after falling as low as $1.2084 - its worst level since the flash crash earlier this month. Its recovery is partly due to Carney’s measured performance and his attempts to reassure on QE, his own future, and worries over the Bank’s independence. | |
With the slight recovery in the pound, the FTSE 100 has lost much of its earlier gains but still ended up 0.45% at 7017.64. | |
On that note, it’s time to close for the evening. Thanks for all your comments, and we’ll be back tomorrow. | |
5.43pm BST | |
17:43 | |
Helena Smith | |
Over to Greece, and the White House has confirmed that president Barack Obama will be visiting the country in November in what officials hope will be the biggest push yet to secure debt relief for the country. Our correspondent Helena Smith reports. | |
Barely days after the race for the White House, the outgoing president will visit Athens on November 15 in what was described as a tour aimed at reaffirming support “for economic reforms that reduce inequality.” | |
The US president has voiced barely disguised frustration with austerity policies he has blamed for economic stagnation and slow growth in Europe. Greek officials in the leftist-led government are hoping Obama will push for debt forgiveness when he goes on to hold talks with the German chancellor Angela Merkel in Berlin so that the Greek economy, currently locked in its worst slump in modern times, can be put on the path to recovery. | |
The IMF, like Washington, both believe that with a debt load in excess of €300bn the Greek economy is unsustainable. Prime minister Alexis Tsipras has recently racheted up the rhetoric, saying a debt deal should be wrapped up by December when Athens completes a second review of the economy with international inspectors representing its bailout creditors at the EU and IMF. His appeals were rebuffed by both Merkel and her French counterpart when he met them on the sidelines of last week’s EU summit in Brussels. Berlin, the main provider of bailout funds to date, has argued that Greece’s problen is not one of debt but competitiveness. | |
5.40pm BST | |
17:40 | |
Jill Treanor | |
Still with Brexit, and Ireland is making a pitch to provide a home for a key regultor. Jill Treanor writes: | |
It is not so long ago that European Banking Authority moved to new offices in London’s Canary Wharf. But the vote for Brexit means the regulator which oversees banks in the remaining 27 countries of the EU is likely to need a new home. Ireland has now made a formal pitch to take on the regulator, best known for conducting its stress tests on banks. Michael Noonan, minister of finance said: “While the UK continues to be a full member of the EU until the negotiations for their exit have been completed, preparations must be made for eventualities such as the relocation of certain European agencies such as the European Banking Authority. Ireland has a significant financial services sector, efficient transport links to other European capitals and the capacity to absorb the European Banking Authority’s re-location to Ireland. Our interest in hosting the EBA demonstrates the continued importance Ireland places in well regulated financial services. As a country with experience in providing links to banks and companies in the UK market, Ireland provides an ideal new home for the staff of the EBA.” | |
Ireland has made no secret of its ambitions to take any exiles from London’s financial services sector. | |
5.38pm BST | |
17:38 | |
Lord Hollick ends by saying a question has been sent in during the proceedings by a pensioner who wants to know what he should invest his savings in. | |
Carney replies that when he can have the answer sent in, he will give a reply. | |
And with that, it’s over. | |
Updated | |
at 5.51pm BST | |
5.33pm BST | |
17:33 | |
5.33pm BST | |
17:33 | |
Question: Why are you opposed to negative interest rates? Do you feel comfortable with size of derivatives on bank bal sheets | |
Carney says on negative rates, uncomfortable with effect on bank balance sheets and lending possibly being tempered or reversed. In UK the building societies are an important part of system and they don’t have alternative supply of finance. | |
On top of that, there is something unnatural to negative rates to some people and there is a confidence effect. | |
In terms of derivatives, reforms put in place have substantially reduced risks. | |
Updated | |
at 5.52pm BST | |
5.29pm BST | 5.29pm BST |
17:29 | 17:29 |
Question: If the MPC had known about fall in sterling in August would they have done same stimulus measures ? When does depreciation start becoming serious? | |
Carney says committee always takes into account exchange rate movements and the reasons, and its effect on inflation. | Carney says committee always takes into account exchange rate movements and the reasons, and its effect on inflation. |
Prior to referendum, the way we talked remained most appropriate - we have to balance supply, demand and exchange rate. | Prior to referendum, the way we talked remained most appropriate - we have to balance supply, demand and exchange rate. |
Since timing of Article 50 became clear, sterling has been influence by market perceptions of [future with EU]. | Since timing of Article 50 became clear, sterling has been influence by market perceptions of [future with EU]. |
If exchange rate has depreciated and UK supply capacity is weakened by Brexit, it will push up inflation. | |
Updated | |
at 5.52pm BST | |
5.26pm BST | 5.26pm BST |
17:26 | 17:26 |
Question: What is concerning central bankers at the moment other than Brexit? | Question: What is concerning central bankers at the moment other than Brexit? |
Carney says the balance of monetary, fiscal and structural policy, and that monetary policy has been overburdened. Fair bit of time needs to be spent on that. | Carney says the balance of monetary, fiscal and structural policy, and that monetary policy has been overburdened. Fair bit of time needs to be spent on that. |
In terms of biggest risk, China. It is going through a series of transitions, manufacturing to services, from bank based lending to market based finance, flexibility of exchange rate. They are all happening simultaneously. Chinese authorities have done an exemplary job in managing this, but there are challenges. | In terms of biggest risk, China. It is going through a series of transitions, manufacturing to services, from bank based lending to market based finance, flexibility of exchange rate. They are all happening simultaneously. Chinese authorities have done an exemplary job in managing this, but there are challenges. |
In recent years the pace of growth has been faster than the speed limit, effectively a product of debt through shadow banking sector. Challenge is to sustainably and safely decelerate the rate of growth. | In recent years the pace of growth has been faster than the speed limit, effectively a product of debt through shadow banking sector. Challenge is to sustainably and safely decelerate the rate of growth. |
5.19pm BST | 5.19pm BST |
17:19 | 17:19 |
Question: when will the recent fall in sterling affect inflation? | Question: when will the recent fall in sterling affect inflation? |
Carney says the recent uptick in inflation is the product of a few factors but not, net, sterling. Mainly energy prices and clothing prices. | Carney says the recent uptick in inflation is the product of a few factors but not, net, sterling. Mainly energy prices and clothing prices. |
Relatively quickly we will see the effects of the sterling depreciation. By the spring [inflation will be] 1.5% to 1.8% annualised with an important contribution [from currency]. | Relatively quickly we will see the effects of the sterling depreciation. By the spring [inflation will be] 1.5% to 1.8% annualised with an important contribution [from currency]. |
We do not have a target for the exchange rate. But it is a factor which influences the stance of monetary policy, and will take into account over next week as we make our policy decision. | We do not have a target for the exchange rate. But it is a factor which influences the stance of monetary policy, and will take into account over next week as we make our policy decision. |
4.52pm BST | 4.52pm BST |
16:52 | 16:52 |
Question: Given government can borrow at low rates and investing, shouldn’t they take advantage of that? | Question: Given government can borrow at low rates and investing, shouldn’t they take advantage of that? |
Carney says have to be careful in fiscal policy about what is temporary and what is baked in system. I agree, given interest rate, relative return on a project doesn’t have to be that high when there is tax revenues and an asset alongside it. But those decisions are decisions of the government. | |
Updated | |
at 5.36pm BST | |
4.50pm BST | 4.50pm BST |
16:50 | 16:50 |
Question: Is monetary policy now too loose and fiscal policy too tight? | Question: Is monetary policy now too loose and fiscal policy too tight? |
Carney says adjusting fiscal policy is much slower than adjusting monetary policy, it needs budget, legislation. | Carney says adjusting fiscal policy is much slower than adjusting monetary policy, it needs budget, legislation. |
So there is a need to understand the fiscal policy of the government and take it into account. Appropriate for chancellor and governor to discuss how the economy is and what should be done. | So there is a need to understand the fiscal policy of the government and take it into account. Appropriate for chancellor and governor to discuss how the economy is and what should be done. |
4.45pm BST | 4.45pm BST |
16:45 | 16:45 |
Away from Carney and back to the pound’s slide. Neil Wilson, markets analyst at ETX Capital said: | Away from Carney and back to the pound’s slide. Neil Wilson, markets analyst at ETX Capital said: |
There is no clear reason for the dip but once the run on the pound starts these days it’s hard to find buyers at any natural or obvious levels...It just goes to show how bearish the sentiment is around the pound at the moment. It doesn’t take a lot to send sterling south at the moment. | There is no clear reason for the dip but once the run on the pound starts these days it’s hard to find buyers at any natural or obvious levels...It just goes to show how bearish the sentiment is around the pound at the moment. It doesn’t take a lot to send sterling south at the moment. |
Of course it’s good news for all those dollar earners on the FTSE 100, which rallied strongly on the pound’s fall before a big bought of profit taking around 15:20-30 pared the day’s gains. | Of course it’s good news for all those dollar earners on the FTSE 100, which rallied strongly on the pound’s fall before a big bought of profit taking around 15:20-30 pared the day’s gains. |
4.45pm BST | 4.45pm BST |
16:45 | 16:45 |
Question: Is there too much uncertainty now for forward guidance to be useful? | Question: Is there too much uncertainty now for forward guidance to be useful? |
Carney says it is useful in certain circumstances, in the exit from unconventional policy. | Carney says it is useful in certain circumstances, in the exit from unconventional policy. |
4.38pm BST | 4.38pm BST |
16:38 | 16:38 |
Lamont: Why are you now buying corporate bonds? | Lamont: Why are you now buying corporate bonds? |
Carney says this provides a different channel of stimulus. It is more powerful pound for pound than QE. We are buying neutrally, companies important to UK economy. | Carney says this provides a different channel of stimulus. It is more powerful pound for pound than QE. We are buying neutrally, companies important to UK economy. |
[Lamot: McDonald’s?] Yes, it is part of the UK economy, providing jobs. | [Lamot: McDonald’s?] Yes, it is part of the UK economy, providing jobs. |
It encourages issuance in that market, also frees up bank balance sheets to lend to smaller businesses and households. | It encourages issuance in that market, also frees up bank balance sheets to lend to smaller businesses and households. |