Mark Carney has defended the independence of the Bank of England, in a veiled rebuke to new Labour leader Jeremy Corbyn, who has ambitions to seize back control of the central bank.
Appearing before the Treasury Select Committee, the Governor said the Bank’s operational independence – first granted by New Labour in 1997 – was the “right model”, in response to pointed questions from Labour MP John Mann, a fierce opponent of Mr Corbyn.
A key Corbyn policy is so-called “people’s QE” – giving the central bank a new mandate to invest directly in large scale housing, energy, and transport – and Richard Murphy, his economic adviser, said in the campaign that the Governor should be sacked if he failed to follow orders.
Mr Mann – who previously said his new leader was “not remotely up to the job of leading my party back to power” – asked the Canadian: “Is the position of the Governor as you understand it... tenable if the Chancellor of the Exchange started instructing you … and intervening in the decision-making?”
Mr Carney responded that under the Bank of England Act the Chancellor cannot instruct the Governor except in the case of extreme economic circumstances, and noted that “even in the crisis it was not judged to be extreme economic circumstances”.
Pressed by Mr Mann, Mr Carney said: “I think … a central bank that has operational independence to achieve a mandate defined by the people through Parliament is the right model, and it is the model for which I as Governor and my colleagues on the MPC are fully accountable. Our responsibility is to keep our eye on that ball.”
The Governor’s comments came as official figures showed wages growing at their fastest rate in more than six years in the three months to July, fuelling speculation that Threadneedle Street could soon raise rates, despite zero inflation and recent weakness from manufacturers and construction firms.
Average weekly earnings, stripping out bonuses, rose by 2.9 per cent over the quarter, the fastest since the three months to February 2009. In the private sector, wages rose faster still – up 3.4 per cent over the quarter and July’s single month figure registering an even sharper 3.7 per cent rise.
Philip Shaw, an economist at Investec, said the report “serves as a reminder to the Monetary Policy Committee that it should look beyond the current period of ‘noflation’ and towards what is likely to be a steady upward drift in inflation towards the 2 per cent target over the next 18 months to two years”.
The number of people in jobs rose by 42,000 in the three months to July to 31.1 million, although the number of unemployed people also rose by 10,000 to 1.82 million. The unemployment rate remained unchanged on the previous quarter at 5.5 per cent.
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