Mark Carney has really put his stamp of authority on the Bank of England (BoE). After just one month as the BoE’s new governor, he’s already shaking things up. At the latest meeting of the Monetary Policy Committee (MPC), he introduced forward guidance that would have been almost unimaginable under the previous Governor, Mervyn King.
Here’s what Carney’s forward guidance looks like. The MPC intends not to raise their benchmark bank rate from its current level of 0.5% until the unemployment rate falls to a threshold level of 7%. This is subject to three caveats:
- inflation is no higher than 0.5% above the 2% inflation target at the 18-24 month horizon
- medium-term inflation expectations are contained
- and the Financial Policy Committee (FPC) believes that an accommodative monetary policy stance doesn’t pose a risk to financial stability. Read more
Oh yeah, I’ll tell you something
I think you’ll understand
When I say that something
I want to hold your hand
- “I Want to Hold Your Hand,” The Beatles
Hand-holding is getting to be very popular with the world’s major central banks. Effectively constrained by zero or near-zero interest rates, central banks have been putting greater emphasis on the effectiveness of their communications. Central bank “speak” – if used wisely – holds the power to ease monetary conditions as much as, if not more than, policy rate changes. Read more
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. Read more
On Monday, the Old Lady of Threadneedle Street proved that she’s still got some tricks up her sleeve. The Bank of England (located on Threadneedle Street in London since 1734 – hence the name) shocked almost everyone by announcing that Mark J. Carney had been selected as Mervyn King’s successor as governor of England’s central bank. I say “shocked” because Carney wasn’t exactly the odds-on favorite for the job…and he’s not a British citizen. You see, Carney’s Canadian…in fact, he’s currently the head of the Central Bank of Canada. The man almost everyone thought would be the next governor of the BoE was Paul Tucker, who is currently the deputy governor at the BoE. He’s been at the BoE since 1980, so it’s not too much to say that practically everyone concerned considered him a shoe-in for the job.
This marks the first time in history that a non-UK citizen has been appointed as governor of the BoE, though there have been several U.S. economists who served on the Monetary Policy Committee in recent years. Yet of all the countries the United Kingdom could poach a central bank head from, at least Canada still has Queen Elizabeth II on the C$20 note.
It may not be a bright, sunny day for the UK economy, but with Thursday’s news of a surge in economic growth in Q3, perhaps we can be forgiven for feeling that at least the clouds have parted. And believe me, Londoners will take “partly cloudy” when we can get it.
This uptick in GDP growth marks Britain’s emergence from a double-dip recession, and I have to say it feels like there is a real shift in policy focus off the back of that one number. The preliminary estimate from the Office for National Statistics put GDP growth at 1.0% for the third quarter of 2012. It was well above consensus estimates in the range of 0.6% to 0.8%.
This marks the first quarter of expansion since the third quarter of 2011, and it’s the fastest rate of growth in five years. What’s behind the surprise increase? Probably the Olympics. Read more