Mark Carney, Governor of the Bank of England, has set himself on a collision course with Theresa May after rebuffing economic claims made in her keynote Conservative conference speech.
Mr Carney argued that the monetary policy pursued by the Bank in recent years has had a positive impact that is “without parallel”, despite the Prime Minister using her speech to claim it had led to “bad side effects”.
The Governor also rubbished the idea, set out in Ms May’s speech, that one group of people had benefitted from monetary policy against the interests of another group who had lost out.
Tension between Ms May and Mr Carney has increased since her speech in Birmingham, in which she sought to underline monetary policy’s “bad side effects” and suggested she would change it, despite it being technically beyond her remit.
Mr Carney has already hit out once, saying the Bank will not “take instruction” from politicians. But speaking to a Lords committee today, he appeared to go further in countering Ms May’s claim.
He said: “Since quantitative easing was first introduced in the economy in 2009 ... there’s been 2.6 million jobs created, GDP is up 16 per cent, per capita income is up 9 per cent and this is following a trauma in the economy.
“Now all of that is certainly not due to quantitative easing, but the stance of monetary policy has supported the UK economy during a difficult period of adjustment.”
In her speech, Ms May promised to lead a Government for those who had been left behind by recent economic growth, and suggested that while people with assets had gained from monetary policy, savers had lost out.
However, Mr Carney said that “in general it is fair to say” that since a monetary policy strategy was pursued in 2009, “most in this economy have benefitted”, before saying, “it is better to be in a job, than not. It is better to have income than not”.
He then added: “There is not one group of people who are savers and another group of people who are asset holders.”
Following a period of friction with Downing Street, Mr Carney also left a question mark over his future at the Bank, when he said: "I want some time to reflect on it. To be absolutely clear, it’s an entirely personal decision."
At conference at the start of the month, Ms May signalled that her administration would not be afraid to pursue a more fiscally active approach to economic policy. She ditched George Osborne’s target of creating a budget surplus by 2020, while Chancellor Philip Hammond signalled he may be prepared to borrow more to spend on infrastructure.
The Prime Minister said: “While monetary policy, with super-low interest rates and quantitative easing, provided the necessary emergency medicine after the financial crash, we have to acknowledge there have been some bad side effects.
“People with assets have got richer. People without them have suffered. People with mortgages have found their debts cheaper. People with savings have found themselves poorer.
“A change has got to come. And we are going to deliver it.”
Mr Carney has been attacked by leading Brexiteers for actively warning of the economic impacts of Brexit in the run up to the EU referendum.
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