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Bank of England: new man for the Old Lady Bank of England: new man for the Old Lady
(3 months later)
"Our ambition at the Bank of England is to be boring." What a different world economic policy-making was when Mervyn King made that statement in 2000. Britain has long since left behind its "nice" decade (non-inflationary constant expansion), as the outgoing Bank of England governor dubbed it; even while the "sober" years ("savings, orderly budgets, and equitable re-balancing") have yet to arrive."Our ambition at the Bank of England is to be boring." What a different world economic policy-making was when Mervyn King made that statement in 2000. Britain has long since left behind its "nice" decade (non-inflationary constant expansion), as the outgoing Bank of England governor dubbed it; even while the "sober" years ("savings, orderly budgets, and equitable re-balancing") have yet to arrive.
Despite all the coalition fanfare about having moved from "rescue to recovery", the inheritance Mark Carney collects when he takes over at Threadneedle Street this Monday is a desperately sluggish economy ("the economic circumstances here are clearly exceptional," as the new man rather delicately puts it); a banking sector where some of the biggest institutions are yet to shuck off all their toxic assets; and, as partners, a Treasury that clings on to austerity even while tacitly acknowledging that it has failed. Apart from that, everything is just hunky-dory. Welcome, governor!Despite all the coalition fanfare about having moved from "rescue to recovery", the inheritance Mark Carney collects when he takes over at Threadneedle Street this Monday is a desperately sluggish economy ("the economic circumstances here are clearly exceptional," as the new man rather delicately puts it); a banking sector where some of the biggest institutions are yet to shuck off all their toxic assets; and, as partners, a Treasury that clings on to austerity even while tacitly acknowledging that it has failed. Apart from that, everything is just hunky-dory. Welcome, governor!
Mr Carney will never have faced anything like this before. He arrives from Canada, where the recession was far shallower and the recovery far more robust. Bay Street, Toronto's equivalent of the City, was more tightly regulated and is much smaller. Where British exporters specialise in selling expensive services to crisis-hit Europeans, Canada's are more likely to sell minerals and other commodities to the US. The switch from Bank of Canada to Bank of England will surely bring Mr Carney greater prominence; but it will also afflict him with bigger headaches.Mr Carney will never have faced anything like this before. He arrives from Canada, where the recession was far shallower and the recovery far more robust. Bay Street, Toronto's equivalent of the City, was more tightly regulated and is much smaller. Where British exporters specialise in selling expensive services to crisis-hit Europeans, Canada's are more likely to sell minerals and other commodities to the US. The switch from Bank of Canada to Bank of England will surely bring Mr Carney greater prominence; but it will also afflict him with bigger headaches.
If the hard times drag on, Britons may well turn frosty towards a slick foreign central banker who has spent years at Goldman Sachs and is now earning six times the salary of David Cameron. Set against all that, the new governor's famous energy and communication skills; and the government's fervent support. George Osborne has not hidden his delight at having snagged his number one choice to run the Bank; Ed Balls was also quick last November to welcome the appointment. That is both a lucky wind for any new economic policy-maker, and a huge amount of pressure. Whatever gets said in the official communiques, the chancellor is clearly hoping that his star signing can deliver a recovery (or strong signs of one) in time for the 2015 election.If the hard times drag on, Britons may well turn frosty towards a slick foreign central banker who has spent years at Goldman Sachs and is now earning six times the salary of David Cameron. Set against all that, the new governor's famous energy and communication skills; and the government's fervent support. George Osborne has not hidden his delight at having snagged his number one choice to run the Bank; Ed Balls was also quick last November to welcome the appointment. That is both a lucky wind for any new economic policy-maker, and a huge amount of pressure. Whatever gets said in the official communiques, the chancellor is clearly hoping that his star signing can deliver a recovery (or strong signs of one) in time for the 2015 election.
There are two big and pressing problems the new governor will have to signal answers to by autumn: what to do about the banks, and what to do to kindle some growth. For the first time since 1997, the Bank of England is now in charge of substantial chunks of financial regulation – and as Mr King told MPs this week the lobbying from bankers is fierce. Just take yesterday's "warning" (or, one might think, special pleading) from Barclays about how it could not both make its finances sounder and lend more to businesses. Not a word in all that about how it could be done if the former bank of Bob Diamond paid its traders and shareholders a bit less. There can be little doubt, too, that many City folk look upon the former investment banker about to move into Threadneedle Street and see in his CV one of their own.There are two big and pressing problems the new governor will have to signal answers to by autumn: what to do about the banks, and what to do to kindle some growth. For the first time since 1997, the Bank of England is now in charge of substantial chunks of financial regulation – and as Mr King told MPs this week the lobbying from bankers is fierce. Just take yesterday's "warning" (or, one might think, special pleading) from Barclays about how it could not both make its finances sounder and lend more to businesses. Not a word in all that about how it could be done if the former bank of Bob Diamond paid its traders and shareholders a bit less. There can be little doubt, too, that many City folk look upon the former investment banker about to move into Threadneedle Street and see in his CV one of their own.
Second, Mr Carney needs to show a bit of steel on his approach to monetary policy. Ultra-low interest rates and £375bn of quantitative easing (QE) haven't triggered a recovery so much as helped pump up an asset bubble. The new governor has already hinted that he would like a more flexible inflation target (perhaps keeping CPI to 2% over three not two years); he should go further and push for a Federal Reserve-style remit that sets off moderate inflation against the need for jobs (and wage) growth. Now is also the time to use QE, that is public money, to direct investment into key sectors (such as green energy) and under-industrialised regions. Mr Carney is famously smooth, but if he does not start his tenure by picking a few important fights, it will be a disappointing omen.Second, Mr Carney needs to show a bit of steel on his approach to monetary policy. Ultra-low interest rates and £375bn of quantitative easing (QE) haven't triggered a recovery so much as helped pump up an asset bubble. The new governor has already hinted that he would like a more flexible inflation target (perhaps keeping CPI to 2% over three not two years); he should go further and push for a Federal Reserve-style remit that sets off moderate inflation against the need for jobs (and wage) growth. Now is also the time to use QE, that is public money, to direct investment into key sectors (such as green energy) and under-industrialised regions. Mr Carney is famously smooth, but if he does not start his tenure by picking a few important fights, it will be a disappointing omen.
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