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Welcome to zombie Britain Mr Carney: Industry’s thoughts on the new governor

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Mark Carney

Mark Carney takes over as the governor of the Bank of England today, stepping into the shoes left vacant by Sir Mervyn King.

Carney won respect during his recent tenure as governor of the Bank of Canada and is credited with sheltering the country from the worst of the financial crisis. He has been recognised by both the Financial Times and Time as one of the most influential people in the financial world.

However, he takes the reins of the Bank when the UK is struggling to achieve sustainable growth, a government implementing austerity to bring down a large deficit and a partially functioning banking system.

Can the former Goldman Sachs banker live up to his reputation as a “financial rock star”? Here we look at the industry’s thoughts on Carney and offer some words advice to the new governor.

Schroders European economist Azad Zangana
“Mark Carney departs the Bank of Canada after five years as governor. Carney was handpicked by chancellor George Osborne to provide more monetary activism to offset the government’s efforts in implementing austerity. Expectations are already high about the impact Carney will have on monetary policy and the range of new measures that he will introduce. Can Carney deliver?

“When Carney arrives to take over as governor, he is likely to find a household sector riddled with debt and overly leveraged towards a housing market that appears to be over-valued by traditional measures, a hawkish oddly-formed coalition government struggling to reign in the nation’s public deficit, a corporate sector refusing to invest, with some parts surviving only thanks to low interest rates, and a banking system that is partially functioning, under capitalised, and lacks competition. Welcome to zombie Britain Mr Carney.”

Bank of America Merrill Lynch Global Research UK economist Nick Bate
“Carney takes over as BoE governor on 1 July amid high expectations: the chancellor described him as ‘quite simply the best, most experienced and most qualified person in the world to do the job’.

“Alongside managing the BoE’s newly expanded responsibilities in banking regulation and supervision, Carney will be aiming to help the UK achieve ‘escape velocity’ from the aftermath of the financial crisis. Yet he is still bound by the BoE’s 2 per cent inflation target, which the chancellor reaffirmed in the budget in March.”

Duncan Lawrie Private Bank senior investment manager James Humphreys
“Market expectations around Carney’s arrival are very high which have been encouraged by the Government and Carney himself. The general sense is that economic innovation is ahead and the City is expecting great things from him.

“Those expecting a magician’s hat and a flash of smoke may well be disappointed. The main difference Carney will bring is likely to be one of tone and communication rather than anything more fundamental. He will try to provide the market with more explicit guidance on the future course of monetary policy, like we have seen in the US.”

Brewin Dolphin head of portfolio strategy Guy Foster
“Carney is known as an innovator and as a dove and is credited with steering Canada through the financial crisis. Canada, however, is a fundamentally different proposition to the UK in terms of the structure of its economy. It’s worth bearing in mind that Sir Mervyn King was a hawk when he took over a governor but leaves as a dove. We won’t be surprised if Mr Carney reverses this monetary metamorphosis.

“With a background in regulation as well as monetary policy, we expect Carney to focus on allowing banks to rebuild their capital while finding ways of enabling them to keep providing funds to the economy – the illusive balance.”

IHS Global Insight chief UK and European economist Howard Archer
“It is very possible that the MPC under Mark Carney could decide that a £25bn dosage of QE (taking the stock up to £400bn) would help recovery to become more firmly established. Carney himself may be particularly keen to try to build up escape velocity while at the same time establishing his presence. A desire to counter rising bond yields could also encourage more QE. More QE would be particularly likely if the recent signs of economic improvement show signs of flagging.

“Of course, Carney will only have one vote out of nine in the MPC as did Sir Mervyn King, but we suspect that he would ultimately be able to carry a majority of MPC members with him should he favour more help for the economy.”

Capital Economics managing director Roger Bootle and chief European economist Jonathan Loynes
“Overall, the lesson for Carney is that he needs to think big. In fact, we have been struck by how narrow minded the debate about monetary policy has been. Nominal GDP targeting has been about as racy as it has got.

“Indeed, our one bit of advice to Carney would be to try everything. Some policies might work, some might not. You’ll only find out if you try. And don’t get distracted by the recent improvement in the economy. Of course it’s good news, but the recovery is based on fragile foundations and needs further support if it is to develop into something more sustained.”

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