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Mark Carney admits Bank must improve its forecasting Bank of England to restructure following claims of forex rigging
(35 minutes later)
Bank of England governor Mark Carney has admitted the Bank needs to improve its economic forecasting ability. The Bank of England will restructure following claims that some of its officials knew about alleged foreign exchange rate fixing.
Mr Carney was asked by MPs on the Treasury Committee why the Bank was so far out on its unemployment forecasts. Governor Mark Carney told MPs on the Treasury Committee that it would create a new deputy governor position with responsibility for markets and banking.
The governor said the pace of UK economic recovery meant that unemployment had fallen faster than expected. He said the person would carry out "a root and branch review" of how the Bank conducts market intelligence,
"The Bank of England needs to get better at forecasting," Mr Carney told the hearing. "The institution has to be beyond reproach," he said.
The Bank had pledged not to consider a rate rise until unemployment fell to 7%, but with that target likely to be reached much earlier than expected, it has been forced to replace the guidance. The Treasury Committee hearing is aimed at finding out what Bank officials knew of the alleged foreign exchange rate fixing claims.
Policy will now be determined not just by unemployment, but by a wider range of indicators, including wage growth and productivity. Mr Carney said he first became aware of the allegations on 16 October.
Mr Carney said the Bank had initially focused on employment because it was the "most easily understood measure of spare capacity in the economy". And he said that within 48 hours of hearing the allegations, the Bank had called in law firm Travis Smith to conduct an independent investigation.
"I have absolutely no regret that we're sitting here with half a million people more in work," he added. Mr Carney said it had no information that anyone from the Bank condoned, facilitated or took part in market manipulation.
Mr Carney also reiterated that increases in interest rates would be "gradual" and "limited". Awareness of claims
He said it was not "unreasonable" to assume interest rates would rise to between 2% and 2.5% over the next three years. Mr Carney's appearance before the committee comes a week after it emerged that some officials were aware of rigging attempts as early as 2006.
Forex probe
Mr Carney is due to be quizzed later over claims that some of the bank's officials knew about alleged foreign exchange rate fixing.
His appearance before the Treasury Select Committee comes a week after it emerged that some officials were aware of rigging attempts as early as 2006.
The bank said there was no evidence its staff had colluded to rig the market.The bank said there was no evidence its staff had colluded to rig the market.
But one member of staff has been suspended over compliance concerns.But one member of staff has been suspended over compliance concerns.
'Extreme naivety?'
The committee will later question bank officials, including Mr Carney, about the foreign exchange (forex) investigation.
Committee member Andrea Leadsom told the BBC earlier that Mr Carney would be closely questioned about whether the bank "did nothing" about suspicions it may have had about forex rigging stretching back to 2006 or 2007.
"It looks to me that the bank could be accused either of complacency or extreme naivety," the Conservative MP for South Northamptonshire said.
How much the bank knew raises the issue of oversight of the Bank of England itself, Ms Leadsom added.
"What we need to know is that they themselves are sufficiently governed," she said.
He will also be questioned about the abandonment of his flagship "forward guidance" policy on interest rates, as well as Scottish independence.
The minutes of meetings from 2006 were published last Wednesday following a Freedom of Information request.The minutes of meetings from 2006 were published last Wednesday following a Freedom of Information request.
They show that a senior member of the Bank of England's staff was told of "attempts to move the market" at a meeting with senior foreign exchange dealers from some of the world's largest banks.They show that a senior member of the Bank of England's staff was told of "attempts to move the market" at a meeting with senior foreign exchange dealers from some of the world's largest banks.
Traders are alleged to have communicated with each other to agree the rate of exchange for foreign currency deals.Traders are alleged to have communicated with each other to agree the rate of exchange for foreign currency deals.
It is thought some traders may have used online chat rooms to set a benchmark for currency trades.It is thought some traders may have used online chat rooms to set a benchmark for currency trades.
'As bad as Libor''As bad as Libor'
The bank said in statement that it did not condone any form of market manipulation.
It said an oversight committee would lead further investigations into whether bank officials were involved in forex market manipulation or were aware of manipulation, or at least the potential for such manipulation.
It has called in law firm Travers Smith to assist with its investigation into what its officials might have known.
Regulators have expressed concern that alleged forex manipulation could become the latest banking scandal.Regulators have expressed concern that alleged forex manipulation could become the latest banking scandal.
Traders are alleged to have colluded in setting certain key exchange rates in the foreign exchange market, resulting in big profits.Traders are alleged to have colluded in setting certain key exchange rates in the foreign exchange market, resulting in big profits.
The head of the Financial Conduct Authority, Martin Wheatley, said last month that currency manipulation was "every bit as bad" as the Libor scandal, where banks including Barclays, Royal Bank of Scotland and UBS paid fines totalling $6bn relating to fixing inter-bank lending rates.The head of the Financial Conduct Authority, Martin Wheatley, said last month that currency manipulation was "every bit as bad" as the Libor scandal, where banks including Barclays, Royal Bank of Scotland and UBS paid fines totalling $6bn relating to fixing inter-bank lending rates.