Let me open by wishing you all a happy or perhaps scary and ghoulish Halloween. There were quite some sights in South London over the weekend although as I am about to describe the Governor of the Bank of England Mark Carney managed with the media to add elements of an April Fool as well. On Saturday Mark Gilbert of Bloomberg headlined a piece as follows.
Bank of England’s Mark Carney Prepares His Own Brexit
This rather extraordinary claim was based on this.
during testimony to a House of Lords committee this week, he dropped an enormous hint that he’s already decided to go. Asked about the central bank’s attitude to a particular policy path, Carney had this to say:
I don’t want to bind … (long pause) … the Bank of England two years’ hence.
I’d bet my lunch money that he hit the pause button because he was about to use the time-honored phrase “I don’t want to bind my successor.” Which in turn suggests he expects to have a successor within two years.
Why might this be?
Carney was at pains to stress that should he leave it will be an “entirely personal decision.”
Like so much of the media Bloomberg could not wait to pander to the establishment line on this.
Yet the predictions in the chart, from economists in the private sector, reinforce Carney’s pessimism about the U.K. economic outlook. The accusation that his despondency is somehow part of a “Project Fear” to reverse the referendum decision is unfounded.
The authors opinion as well as forecasts are presented as facts and actual facts are missed out. For example that Governor Carney was part of a UK establishment that forecast that the quarter just past would see the UK economy shrink by between 0.1% and 1% when in fact it grew by 0.5%. Also the 25 or so forms of his Forward Guidance when he hinted at interest-rate rises and thereby misled those remortgaging or taking out business loans do merit a mention but there is no apparent criticism.
Back then, the economy was humming at a sufficient pace for Carney to warn in June 2014 that interest rates might have to rise. Post-Brexit, he’s presided instead over an emergency rate cut.
Oh and the man who cut Bank Rate and eased monetary policy into an exchange-rate depreciation is presented like this.
For the rest of the day, the pound held steady.
Ah one day! Now let me refer to the post-referendum day as on it Governor Carney did his job in terms of offering a back stop for matters such as liquidity at a time when the UK political establishment went missing.
So an extraordinary burst of media speculation which made me suspicious and I made my views known yesterday morning.
Has it occurred to anyone else that these rumours might be the way Bank of England Governor Carney extends his term from 2018 to 2021?
Last night the news that he was in fact staying came from a media organisation which seems to have become an adjunct to the Bank of England Public Relations department.
Rather grand language from the economics editor of the Financial Times don’t you think? After all both the Chancellor and the Prime Minister had offered public support for him. Also Mario Draghi of the ECB and Governor Kuroda of the Bank of Japan must consider him to be very thin-skinned after what they have received. Added to this the establishment line on the independence of the Bank of England was pushed hard.
the BoE’s independence…….Friends say that Mr Carney is determined to defend the Bank of England’s independence.
In my opinion the way that QE style policies require the approval of the Chancellor means that the Bank of England has cast policy independence aside as fiscal and monetary policies merge. You could also argue that the Bank of England has been able to ease monetary policy even more than any politician would have been allowed to. If you throw in the way that HM Treasury appoints the Monetary Policy Committee members and gives them a remit to follow it gets ever harder to claim independence.
Overall the situation is summed up well by a reply to the Financial Times. From British Summer.
Mark Carney has today managed to groom himself into the roll of a media celebrity….. Leaking stories about whether you are staying or going in your position is bad banking in most folks books.
Meanwhile there is something of a critique of Bank of England policies being provided by its own money supply data. Back on the 29th of September I pointed out this.
There is much to consider in the money supply data for the UK. There is always a caveat emptor with it as the effects from it can be long and variable and we have just had an economic change. However if you brought a Martian economist to Earth and asked he/she/it to offer a view in monetary policy they would be more likely to recommend a tightening than an easing. My view is that as the UK was already receiving a large boost from the lower level of the UK Pound it should have waited for more data.
So as you can imagine I was waiting for today’s update.
UK broad money, M4ex, is defined as M4 excluding intermediate other financial corporations (OFCs). M4ex increased by £15.9 billion in September, compared to the average monthly increase of £13.0 billion over the previous six months. The three month annualised and twelve-month growth rates were 10.0% and 7.7% respectively.
So the annual growth rate accelerated and if we add that to the fall in the UK Pound we can see that quite a monetary stimulus is being provided. Meanwhile we can see this too.
Consumer credit increased by £1.4 billion in September, compared to an average monthly increase of £1.6 billion over the previous six months. The three-month annualised and twelve-month growth rates were 9.6% and 10.3% respectively.
Thus it is no great surprise that the UK economy continues to grow as we sing along to Diana Ross.
I’ve got the sweetest hangover
I don’t wanna get over
There is much to consider here as the UK is being given quite a monetary boost. I counselled caution after the first one of two numbers as the EU leave vote was bound to have effects which might wash out. But broad money growing at 7.7% is quite a surge and unless we grow quite fast it will be inflationary. If you subtract our current annual growth rate from this the rule of thumb is that inflationary pressure is running at 5%. Now this has leads and lags and works better for RPI than CPI but it poses a clear critique of the monetary policy of a Bank of England which will no doubt claim next year that any inflation was nothing to do with it.
Meanwhile so much of the media is busy feeding a silly Public Relations exercise where the term of Bank of England Governor Carney the “star central banker” is apparently more important than the money supply data.