Carney: killing us with kindness
7 July 2016 - Peter Warburton
Since 23 June the Governor has bombarded us with announcements in support of the UK economy and financial system. Their declared intent is to prepare the economy for the post-Brexit challenges, but their subliminal message is ‘Take cover’. Carney talks about ‘ruthless truth telling’ and bracing for a ‘large, negative shock’. Shouldn’t he at least have waited to find out what the actual impact is?
If the fall-out from the UK referendum turns out to be captured in the rounding error of GDP growth, Mark Carney and George Osborne will have some serious explaining to do. As architects and co-conspirators in Project Fear, they warned of the nasty policy correctives – the likelihood of higher interest rates, higher taxes and spending cuts that would become necessary if the UK public were stupid enough to vote Leave. Their admonitions were duly ignored and the British public proved to be amply pig-headed enough to vote Leave.
Carney’s response is to ply the financial system with the offer of £250bn of additional liquidity, reverse a macro-prudential measure taken only in March and hint strongly at 25-50 basis points of interest rate cuts over the summer. Whatever happened to data dependency? These are the rash actions and words of a rattled man who has not consulted widely with his senior advisors. Given that the value of Sterling has plunged and the rates curve has already discounted an easing, there was no need for Carney to signal any policy changes at this stage. A beaming smile and soothing words of reassurance would have worked just fine.
Instead, we have a Bank that is committed to a very negative short-term economic outlook and has doubtless influenced business decision-makers and consumers in the direction of caution. The role of the Bank is to stand ready to respond as appropriate, not to pre-empt economic outcomes that rest on a complex mixture of confidence and apprehension. If Mark Carney, a Canadian, really believed that UK citizens “are admired the world over for their strength under adversity” and that the UK economy “is one of the most flexible in the world”, he would have stood back, watched and listened.
Worst of all, he has overstepped the mark politically, in his endorsement of Project Fear, technically, in releasing a speech at 4pm on the last trading day of a quarter and only 6 days after the referendum result, and procedurally, in appearing to pre-announce a rate decision taken by a 9-person committee. Not impressed.
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