Countdown to Carney at the Bank of England

Britain’s reigning monarch, Queen Elizabeth II, has graced the obverse (that’s coin-and-currency aficionado jargon for “front”) of the Canadian $20 banknote since 1954. Now, 59 years later, a Canadian is getting the opportunity to influence British money…well, monetary policy, at least.

On July 1, Mark Carney, a Canadian and the outgoing head of Canada’s central bank, will cross the pond to take over as the governor of the Bank of England. When he does so, Carney looks to be inheriting an economy that will likely be somewhat improved from the depths of its double-dip recession. The UK is, in fact, enjoying an upturn in activity. First-quarter GDP growth was a positive surprise, and the most recent purchasing manager index readings are suggesting that the recovery has stretched into the second quarter. We’ve seen bank-funding conditions improving markedly, especially for households and consumers, which is a strong positive.

This positive news meant that the current incarnation of the BoE’s Monetary Policy Committee kept monetary policy unchanged at their May meeting. At recent meetings, the tone has suggested that the MPC was giving strong consideration to doing more stimulus than already out there. They’ve also been considering the current “green light” they’ve given to tolerating above-target inflation for a bit longer. If the current improvements begin to stall, it’s possible that several members of the MPC are cautious enough and could vote for further quantitative easing (i.e., asset purchases) in the coming months.

What then are we to expect from Mr. Carney? I’d imagine a significant shift once July arrives. Carney is in favour of introducing Federal Reserve-style intermediate thresholds to bolster policy guidelines. And the MPC will take up an assessment of the merits of such a policy. Either way, I’d expect greater “activism” from Carney, and, as such, I wouldn’t be surprised to see more unconventional policy measures on their way later this year.

For more of my thoughts on the Bank of England (and the other major central banks), you can check out our Central Bank Watch.

 

 

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