It really was quite some performance. George Osborne’s flexible friend Mark “Capable” Carney sat on the hot seat for nearly four hours giving testimony before the Treasury Select Committee without flagging for a second, and barely made a slip. He clearly has the stamina for the job. I was exhausted just watching him. Mr Carney has a relaxed style and is much more affable than his predecessor. And he did what he set out to do, which was essentially to say nothing.
Committee members pushed him on his £874,000 recruitment package in light of the fact that Bank staff have had a pay freeze for the last two years. There is a market for talent in the financial sector, and Mr Carney has what economists call a high “opportunity wage” – that is, he could earn a large amount in his next best alternative employment, and probably a lot more if he was to go back to the private sector. So the fact of life is that the Government had to pay to get their man. We should always remember that 1 per cent of GDP is a really big number (£15bn actually, or around £40 per UK resident). End of discussion, unless of course Mr Carney fails to deliver, which I hope doesn’t happen for the country’s sake. Then all bets would be off. People would be able to say they haven’t had value for money, and the British media will turn on him, so the pressure is on and he knows it.
He has taken on a really tough job because, as the OECD made clear in its report on the UK released last week, the British economy is going nowhere. The chairman of the TSC, Andrew Tyrie, seemed pleased that he managed to get Mr Carney to agree to respond to the committee’s requests, which Sir Mervyn King had unreasonably blocked at every turn.
Some of the most interesting comments were about the new Governor’s consensual style of management, which will be a welcome breath of fresh air for the staff at the Bank of England. They will feel like they are about to have a giant foot taken off their collective heads. It is clear that Mr Carney is an experienced manager and will appoint his own people. He should do that sooner rather than later as there are a couple of hawkish members of the MPC, chief economist Spencer Dale and external member Martin Weale, whom he and his boss, Mr Osborne, may want to pink-slip. Both their terms expire in the spring and this is an opportunity for the new Governor to impose his will. Maybe he has a few Canadian central bankers and economists whom he would like to relocate from one of the least expensive capitals of the world, Ottawa, to one of the most expensive, London. I suspect he won’t have trouble getting them work permits.
We learned some interesting facts. Mr Carney is keen on bridge-building and praised a couple of bank staff, Andy Haldane and Paul Tucker. He also made it clear it was important to his decision to take the job that Charlie Bean had agreed to stay on for another year. So the Deputy Governor for Monetary Policy (Bean) was instrumental in the Deputy Governor for Financial Stability (Tucker) not getting the job. It will be interesting to be a fly on the wall at the next few MPC meetings. I suspect Mr Tucker is already looking for a well-paid private-sector job.
Mr Carney did make a dig at Lord Turner, the outgoing head of the FSA, whose job Mr Carney is also taking, and who had expressed an interest in distributing so-called “helicopter money”. The new Canadian boss said he couldn’t back this in a month of Thursdays. It will also be interesting to see where Lord Turner goes next; he is also likely to get big-money offers of employment in the Square Mile or its Canary Wharf annexe.
So the big deal was that Mr Carney didn’t actually say that much; he is an experienced central banker who knows not to rock the boat. The last thing he wanted was to cause big oscillations in the markets, and he largely succeeded in that. He did call for a short reappraisal of the Bank’s remit, and revealed that he had had “high-level” discussions with the Chancellor over such a possibility.
He told us that we now operated flexible inflation targeting, and he made it clear he is keen on forward guidance, that is to say keeping rates lower for longer. A change in the remit is something that is for Mr Osborne to decide, and he likely will announce first steps in the Budget. In the end, I would not be surprised if he moved rather closer to a dual mandate, with more emphasis on growth, given his problems loosening fiscally. It would be appropriate for such a change to be in place by July, when Mr Carney takes office. We need to get away from the focus on non-existent inflation.
Interestingly, the MPC released its decision at noon, in the midst of his grilling. The nine members would have been aware of the happenings a couple of miles along the Thames, and would have been mindful not to rock his boat. They kept rates and the amount of QE unchanged, but did issue a statement, which normally happens only when there has been a change in rates or the scale of asset purchases.
This time my guess is that it was done because they voted for the first time on reinvesting £6.6bn gilts that are to mature before their next meeting. We won’t know what is actually being purchased for a month. Plus there was a hint that the CPI forecast in its Inflation Report next week was going to be higher, and the statement was meant to clarify they had no intention of tightening. There is a possibility that one of these votes wasn’t unanimous, and we won’t find that out for a couple of weeks until the minutes are released. Money available from maturing assets could be used by the MPC to buy private-sector assets without increasing the level of QE.
There are interesting days ahead in Threadneedle Street. I am looking forward to watching the new broom start sweeping.
Apparently, the members of the committee seemed pretty pleased with his performance, as they all rushed over at the end of the marathon hearing to shake his hand. They don’t have the right of veto, but will surely issue a report, which is bound to be glowing. It’s a good time to be a central bank watcher.