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.



The information in this article has been derived from sources believed to be accurate.  Information derived from sources other than Principal Global Investors or its affiliates is believed to be reliable; however, we do not independently verify or guarantee its accuracy or validity.

The information in this article contains general information only on investment matters and should not be considered as a comprehensive statement on any matter and should not be relied upon as such. The general information it contains does not take account of any investor’s investment objectives, particular needs or financial situation, nor should it be relied upon in any way as a forecast or guarantee of future events regarding a particular investment or the markets in general. All expressions of opinion and predictions in this document are subject to change without notice.

Subject to any contrary provisions of applicable law, no company in the Principal Financial Group nor any of their employees or directors gives any warranty of reliability or accuracy nor accepts any responsibility arising in any other way (including by reason of negligence) for errors or omissions in this article.