The challenges facing the Bank of England are easily stated. How to cool a housing bubble, especially in London, without damaging the rest of the country? How to best signal, and in due course implement, a rise in interest rates without scuppering a recovery growing in strength and breadth?
And how not to appear to be the chief cheerleader for the Chancellor of the Exchequer in the approach to a general election?
On the first, the Governor of the Bank, Mark Carney, has a comprehensible narrative. Interest rates are there for the whole economy and formally for the control of inflation, though in practice are more targeted on unemployment these days. A different set of controls on bank and building society lending – “macro prudential tools” in the jargon – are supposed to prevent bubbles and, thus, financial instability (though the Bank would have a greater chance if it didn’t have to deal with the Treasury’s reckless subsidies to house buyers).
On the broader economy, the messages are also getting across. Employment, despite the caveats that should be attached to low-paid, part-time and temporary work, and the true nature of the new “self-employed” (some being merely rebranded underemployed workers), is growing. When rate rises come, we expect, they will arrive in baby, predictable steps – and slowly, say, 0.25 percentage points every few months or so. By the time they arrive next year, wage growth should have picked up so that this does not represent too painful a squeeze on household budgets. (Besides, the strength of sterling is already doing some of the work.)
So the consensus remains that the Bank will start the long road to monetary normality with a quarter-point hike next spring. This prospect is already being spun as “good news” by ministers, as proof of George Osborne’s wise management of the economy. As if his communications strategy were not challenging enough, in the months ahead Mr Carney needs to be careful in his presentation of policy lest he appear to endorse Coalition economic reforms in advance of polling day. Good luck with that, Governor.