James Moore: Mark Carney’s caught out by the ‘dismal science’


Perhaps we shouldn’t criticise Mark Carney too much. The Governor of the Bank of England has admitted that his first foray into “forward guidance” regarding interest rates didn’t exactly go according to plan.

The reason? Unemployment rates have fallen to the 7 per cent level at which he said the guidance would have to be reviewed far faster than anyone expected.

One might ask what the problem is with that. Shouldn’t we just celebrate? Well, with a tighter labour market comes inflationary pressure which is why he signalled the need for a review when unemployment fell to that level in the first place.

Interestingly, however, this has coincided with inflation – when measured by the Consumer Prices Index – falling to the  2 per cent target for the first time in years.

Economists, are, as usual, divided on what will happen. But one thing they may agree on is that there is good reason for economics being described as the “dismal science”. And if Mr Carney can’t be skilled with his forecasts, then it doesn’t much matter if he’s lucky with the overall outcomes.