What a carry on from Bank of England Governor Carney

Today we find ourselves reviewing the latest data on the UK employment and wages situation. We do so noting that the inflation situation for real wages has briefly improved although one months data here compares with the 3 months over which the headline wages data is calculated. But before we get to it there were some extraordinary statements made to the Treasury Select Committee of UK Parliament by Bank of England Governor Mark Carney. Make what you will of this from the Guardian.

“The thing about forward guidance,” drawled Mogadon Mark Carney, opening one eyelid a millimetre or two, “is that it is guidance that is forward. Which isn’t to say it’s meant to be in any way accurate. Indeed, it would be surprising if it were. The most important thing about forward guidance is that the underlying economic determinants should be correct, not that it should be helpful.”

Now those who remortgaged on the back of his hints and promises of higher interest-rates or took out fixed-rate business loans may be checking the definition of miss-selling at this point as they read the section I have highlighted. Indeed Governor Carney admits that I have been right all along to point out his failures as he admits even he would be surprised if he had been right. This is very awkward for those who have placed themselves full square behind him although to be fair there is probably not much daylight where they placed themselves. I note also that Governor Carney is now a figure of fun in the Guardian, does this mean that he no longer has film-star looks and we need to be told if he is still a rock star central banker I think?

Also there was a particularly dubious statement from Governor Carney. From the Financial Times.

Mr Carney told a committee of MPs that low global interest rates and rising inequality in developed countries were driven by “much more fundamental factors”.

UK interest-rates just got lower because he cut them in August! Oh and he introduced an extra £60 billion of UK QE Gilt purchases to try to reduce Gilt yields (admittedly not going so well right now) and £10 billion of Corporate Bond buying to do the same there. His Chief Economist called this a “Sledgehammer” but Mark now seems to think it was nothing to do with that at all? Odd as he finds the time to try to take any credit he can from it.

Also the issue of rising inequality is another thing which is apparently nothing to do with Governor Carney. As of course time only started in June 2013 some may forgive him for not reading Bank of England research from August 2012.

QE has caused the price of gilts to rise and yields to fall, in turn leading to an increase in demand for, and price of, a wide range of other assets, including corporate bonds and equities.

Indeed it went further than this.

By pushing up a range of asset prices, asset purchases have boosted the value of households’ financial wealth held outside pension funds, but holdings are heavily skewed with the top 5% of households holding 40% of these assets.

Actually we can combine both of Mark Carney’s denials as you see back in 2012 the Bank of England had the opposite view of the impact in savers.

That suggests that deposit holders are likely to have been affected much more by the cuts in Bank Rate than by downward pressure on longer-term interest rates as a result of QE.

Before I move on this from that 2012 paper was a real example of moral hazard when you review your own policies.

The paper shows that QE also has a broadly neutral impact on a fully funded ‘defined benefit’ scheme.

Now whilst they at the Bank of England may have a fully funded pension elsewhere they were in rather short supply and since then the supply has got shorter due to its actions.

Also as happens so often with Bank of England Governors Mark Carney has become keen on a lower value for the pound.

“The UK economy has … had a large external imbalance and that large external imbalance as represented by a large current account deficit needed to be righted,” he said. “The exchange rate is part of that adjustment mechanism.”

Odd that he seems to have got on that particular bandwagon so recently as you could have made that case for years and indeed decades.

Oh and here is a development which ties in yesterday’s inflation numbers with today’s wages data and provides a headache for the distributional denials of Mark Carney.


Today’s Data


This number has seen quite a boom as the UK economy recovers from the credit crunch and it continues as shown below. From the Office for National Statistics.

There were 31.80 million people in work, 49,000 more than for April to June 2016 and 461,000 more than for a year earlier.

There were 23.24 million people working full-time, 350,000 more than for a year earlier. There were 8.56 million people working part-time, 110,000 more than for a year earlier.

So we continue to generate jobs and this means that the employment rate of 74.5% is as high as it has been since the numbers started in 1971. Care is needed as the definition of full-time working is somewhat flexible and we would need to know population size to have an idea of employment per capita.


This opens well too.

The unemployment rate was 4.8%, down from 5.3% for a year earlier and the lowest since July to September 2005…….There were 1.60 million unemployed people (people not in work but seeking and available to work), 37,000 fewer than for April to June 2016 and 146,000 fewer than for a year earlier.

Also I note that unemployment for women fell which is good as last month the situation was different and seemed to be picking them out. In the silver lining there is a cloud but if you make a big deal of it you have to explain why you are pushing a series which was already discredited some 30 years ago.

For October 2016 there were 803,300 people claiming unemployment-related benefits. This was:9,800 more compared with September 2016…9,900 more than for a year earlier.


These continued as before.

Between July to September 2015 and July to September 2016, in nominal terms, total pay increased by 2.3%, unchanged compared with the growth rate between June to August 2015 and June to August 2016.

Although real wage growth dipped slightly.

Comparing the 3 months to September 2016 with the same period in 2015, real AWE (total pay) grew by 1.7%, 0.1 percentage points lower than seen in the 3 months to August.

Care is needed here though because if we use the Retail Price Index to calculate real wages we see that the growth fades significantly as it these days is around 1% more than the official measure. But if we stick with the official measure you may enjoy some perspective here.

Looking at longer term movements, since comparable records began in 2000 average total pay for employees in Great Britain in nominal terms increased from £311 a week in January 2000 to £505 a week in September 2016; an increase of 62.2%. Over the same period the Consumer Prices Index increased by 40.6%.


We find much to consider here as Governor Carney continues to twist and turn and indeed spin as he attempts to explain why he cut Bank Rate and eased monetary policy into a currency decline. A simple precis of his approach is that everything good is due to him and bad isn’t. Meanwhile the UK labour market looks like it has carried on regardless with one clear exception which is that if you have employment at a peak wage growth would in the past be much higher. Remember also that the wage growth excludes the self-employed and small businesses. Also higher employment does tend to have this effect these days.

0.2% growth in output per hour in Q3, down from 0.6% in Q2 #productivity

Speaking of numbers this is an intriguing one from Merryn Somerset Webb.

Pension Protection Fund spends £600,000 on PR. Why do they need PR? Someone explain?




11 thoughts on “What a carry on from Bank of England Governor Carney

  1. Shaun, I saw an excerpt to the MC interview on ITV news last night. I felt like throwing a brick at the TV. Apparently inflation expectations are a lot higher and that is because of a massive drop in Sterling, implied in a way that such an event could not be attributed to him. Perverse it was that inflation fell last month leading to a confused news item to say the least.

    That piece was followed by a housing story where apparently a shortage of mortgage availability was preventing house builders make more units, citing a place in Essex where thousands of homes had been permssioned but big builder plc had only done less that 100.

    The people in Govt and Media are so ignorant or cronied that watching this amounts to a sick joke.

    Paul C.

    • Hi Paul C

      Yes the inflation data wrong-footed more than a few media organisations yesterday. As you point out they do not seem either capable or willing to even try to hold Governor Carney to account.

      A shortage of mortgages? More like people cannot afford the very high house prices.

    • The first fall in sterling happened immediately after the Brexit result – there’;s a clue there as to the original cause. Investors took fright at the referendum result, sold out their UK holdings and moved their money abroad causing a collapse in demand for sterling in the process.

      The second much smaller fall was attributable to Carney’s stupid rate cut.fall

  2. I think the press and people in general are finally starting to rumble central bankers for what they are. Basically very well paid guessers who always have the final word. When things go well they are quick to claim the credit and when things go badly they say how much worse it would be if it weren’t for their actions. Often both things are never tested and the nature of economics is such that you can always throw in another variable or use a different measure to explain how black is actually white. My personal Carney favourite was when he appeared before a parliamentary select committee earlier in the year and was asked his opinion of how the economy will perform post brexit. His answer was “it depends what happens”. Eight hundred grand a year for “it depends what happens”….

    • Hi Dave and welcome to my corner of the web

      I made a similar point on TIpTV Finance earlier when I asked what the performance criteria are for central bankers. I also suggested that if they took their efforts to say Roman Abramovich at Chelsea saying we lost 4-0 but without us it would have been 5-0 we all know what would happen next! I will post a link to it in tomorrow’s post.

      As to the public catching on to all of this, I hope so…..

      • Hi Shaun,

        I think Carney got rumbled publicly over Brexit. Whether he made the doom and gloom statements because he was pushed into it by the PM’s office, and/or whether he thought it wouldn’t matter because there was no way the leavers could win and it would never be tested, saying the wheels will fall off everything if we leave was a very silly thing to do. When none of this materialised he then made a token cut in rates and fired up the printing presses (again) claiming how he’d saved us all from ourselves. The question he never answered was if it was that easy why didn’t he say if we vote to leave the bank will act and save you all so it doesn’t matter how you vote in this respect. He also showed he was more than a bit thin skinned when he got some stick after this in the press and from Teresa May and others.

  3. Great blog as always, Shaun.
    You used this quote from ONS: “average total pay for employees in Great Britain in nominal terms increased from £311 a week in January 2000 to £505 a week in September 2016; an increase of 62.2%. Over the same period the Consumer Prices Index increased by 40.6%.” The RPIJ increased by 46.8% over the same period; it probably would have shown a higher inflation rate if stamp duty were included in it, as it should. So rather than real wages rising by 15.3% as the CPI would show, they actually rose by something less than 10.5%. Unfortunately, if the National Statistician proceeds with his promise to discontinue publication of the RPIJ, such a real wage calculation will be difficult or impossible to calculate in the future. The CPI inflation rate won’t always be lower than the RPIJ inflation rate. If there was a massive housing bust it would be higher. However it will always be an inferior measure of cost-of-living changes.

    • Hi Andrew and thanks

      It is easy to forget the impact of Council Tax on inflation or rather the impact of its omission from CPI. Suddenly the real wage numbers using your calculations look materially worse.
      As to the RPIJ issue I think that what has happened here is very wrong. Supporters of it like yourself have, let’s not mess about, been completely misled. It was supposed to be the way forwards and now has been completely dropped.

    • Hi am

      Overall yes and if there is a signal it comes from the employment numbers which continue to grow. It is hard to know what to make of the slowing when employment is in the record zone. As ever a clearer or should I say any guide to underemployment would help a lot.

  4. Thanks for these and other posts that help clear some of the financial fog blanketing the UK right now and in recent years. Also, for uncovering the wanton and destructive policies being implemented by amoral governments and their central bank lackeys. It is much appreciated by this reader. If only financial solutions were so clear as well……

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