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February 10, 2013 5:51 pm
Economists do not expect the arrival of Mark Carney at the Bank of England to make much difference to monetary policy or the UK economy.
The overwhelming consensus is that the Bank of Canada boss is likely to change the tone of communication at the BoE, but his impact on the economy will be, as Joost Beaumont of ABN Amro said, “evolution, not revolution”.
Simon Wells, of HSBC and a former BoE official, said: “Full-blown monetary regime change seems unlikely.”
One of the main reasons for the lack of excitement, even over Mr Carney’s plan for the bank to issue guidance over how long it is willing to keep ultra-loose monetary policy in the face of high inflation, is that the monetary policy committee has already done just that.
On Thursday as Mr Carney was speaking to MPs, the MPC released a statement saying that inflation would remain well above target for some time and the majority of members were willing to ignore that for now as action to bring inflation lower would damage the recovery and ultimately lead to a greater chance of inflation falling well below target.
This was almost exactly putting Mr Carney’s ideas into practice before he arrived, a large number of economists noted. Danny Gabay of Fathom Consulting said the governor designate’s testimony “contained few radical departures from the existing house view”.
Kevin Daly of Goldman Sachs added: “The change in the MPC’s communication policy revealed today suggests that Mr Carney’s views – at least with respect to communication – are influencing the MPC’s thinking well ahead of his arrival.”
If the communications change has happened already with greater pre-commitment of policy, few economists gleaned a significant change in tone either. Jens Larsen of RBC Capital said: “He was rather clear that he would not be in favour of more radical policy approaches, and explicitly rejected helicopter money.”
And Philip Rush of Nomura added: “[Mr Carney] is perhaps less gung ho when it comes to stimulus than some commentators had expected, but we doubt his plumage will look out of place at the dovish BoE.”
Some economists thought that Mr Carney’s more cautious manner than in recent speeches and appearances reflected the painful reality that monetary policy might not have much more room to boost the economy in the current difficult times.
Rob Wood of Berenberg Bank said: “He cannot pull a rapid recovery out of a hat. But his thinking on guidance and flexibility already appears to be seeping into BoE thinking. We continue to expect modest further easing through Fed-style guidance after he takes over in July.”
As so often, there was not unanimity among economists. Some saw more significance in Mr Carney’s remarks. Michael Saunders of Citi, who has long predicted more quantitative easing, said Mr Carney’s emphasis on “flexible” inflation targeting implied “further monetary loosening is likely”.
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