The Mark Carney experience at the Bank of England

This morning Mark Carney has given his Mansion House speech which was delayed due to the Grenfell Tower fire tragedy. One thing that was unlikely to be in the speech today was the outright cheerleading for the reform of the banking sector which was the basis of his speech back on the 7th of April as the news below emerged.

Barclays PLC and four former executives have been charged with conspiracy to commit fraud and the provision of unlawful financial assistance.

The Serious Fraud Office charges come at the end of a five-year investigation and relate to the bank’s fundraising at the height of 2008’s financial crisis.

Former chief executive John Varley is one of the four ex-staff who will face Westminster magistrates on 3 July.

Firstly let me welcome the news that there will be a trial although the conviction record of the Serious Fraud Office is not good. The problem is that this has taken around nine years about something ( £7 billion raised from Qatar ) which frankly looked to have dubious elements when it took place. What you might call  slooooooooooooow progress of justice.

What about UK interest-rates?

We first got a confession about something we discovered last week.

Different members of the MPC will understandably have different views about the outlook and therefore on the potential timing of any Bank Rate increase.

Actually that is an odd way of saying it as five members voted for no change with some more likely to vote for a cut that a rise in my opinion. Although of course Mark Carney has had trouble before with rises in interest-rates which turn out to be cuts!

Next we got a confirmation of the Governor’s opinion.

From my perspective, given the mixed signals on consumer spending and business investment, and given
the still subdued domestic inflationary pressures, in particular anaemic wage growth, now is not yet the time
to begin that adjustment

Indeed he seems keen to kick this rather awkward issue – because it would mean reversing last August’s Bank Rate cut – as far into the future as possible.

In the coming months, I would like to see the extent to which weaker consumption growth is offset by other components of demand, whether wages begin to firm, and more generally, how the economy reacts to the prospect of tighter financial conditions and the reality of Brexit negotiations.

Indeed if we are willing to ignore both UK economic history and the leads and lags in UK monetary policy then you might be able to believe this.

This stimulus is working. Credit is widely available, the cost of borrowing is near record lows, the economy has outperformed expectations, and unemployment has reached a 40 year low.

Missing from the slap on the back that the Governor has given himself is the most powerful instrument of all which is the value of the UK Pound which has given the UK economy and more sadly inflation a boost. Indeed the initial response to the Governor’s jawboning was to add to the Pound’s fall as it fell below US $1.27 and 1.14 versus the Euro. Should it remain there then the total fall since the night of the EU leave vote then it is equivalent to a 2.75% fall in UK Bank Rate which is a bazooka compared to the 0.25% peashooter cut provided by the Bank of England. So if you believe Mark Carney you are likely not to be a fan of Alice In Wonderland.

“Why, sometimes I’ve believed as many as six impossible things before breakfast.”

Also if he is going to take credit for er “Credit is widely available” then he will be on very thin ice when he next claims the surge in unsecured credit is nothing to do with him.

Carney’s Cronies

Ironically in a way the foreign exchange market was a day late as you see the real change came yesterday.

​The Chancellor of the Exchequer has announced the appointment of Professor Silvana Tenreyro as an external member of the Monetary Policy Committee (MPC).  Silvana will be appointed for a three year term which will take effect from 7 July 2017.

There are several issues here, if I start with British female economists then that is another slap in the face for them as none have been judged suitable for a decade. Next came the thought that I had never previously heard of her which turned to concern as we were told she came from “academic excellence” in an era where Ivory Towers have consistently crumbled and fallen along the lines of Mount Doom in the Lord of the Rings. But after a little research one could see why she had been appointed. From a survey taken by the Centre For Macroeconomics.

Question Do you agree that the benefits of reforming the monetary system to allow materially negative policy interest rates outweigh the possible costs?

Agree. Confident. Reforming the monetary system to allow negative policy interest rates will equip the BoE with an additional tool to face potential crises in the future.

Does “reforming the monetary system” sound somewhat like someone who will support restrictions on the use of cash currency and maybe its banning? She is also a fan of QE ( Quantitative Easing ) style policies.

Question Do you agree that central banks should continue to use the unconventional tools of monetary policy deployed in response to the global financial crisis as part of monetary policy under normal economic conditions?

Agree. Confident. A wider set of policy tools would give mature and credible central banks like the BoE more flexibility to respond to changing economic conditions.

What is it about her apparent support for negative interest-rate and QE that attracted the attention of Mark Carney? Of course in a world after the woeful failure of Forward Guidance and indeed the litany of forecasting errors he was probably grateful to find someone who still calls the Bank of England “credible”!


We have a few things to consider and let me start with the reaction function of foreign exchange markets. The real news was yesterday as a fan of negative interest-rates was appointed to the Bank of England but the UK Pound waited until Mark Carney repeated his views of only Thursday to fall!

Meanwhile there was this from Governor Carney.

Monetary policy cannot prevent the weaker real income growth likely to accompany the transition to new
trading arrangements with the EU. But it can influence how this hit to incomes is distributed between job losses and price rises.

His views on the EU leave vote are hardly news although some are trying to present them as such. You might think after all the forecasting errors and Forward Guidance failures he would be quiet about such things. But my main issue here is the sort of Phillips Curve way we are presented a choice between “job losses” and “price rises” Just as all credibility of such thinking has collapsed even for those with a very slow response function in fact one slow enough to be at the Serious Fraud Office. He is also contradicting himself as it was only a few months ago we were being told by him that wage growth was on the up. Although that February Inflation Forecast press conference did see signs that the normally supine press corps were becoming unsettled about a Governor previously described as a “rockstar central banker” and “George Clooney” look a like.

Governor, back in August the forecast for GDP for this year
was 0.8%. Now it’s being forecast at 2.0%. That’s a really
hefty adjustment. What went wrong with your initial

He may not be that bothered as you see much of today’s speech was in my opinion part of his job application to replace Christine Lagarde at the IMF.

With many concerned that global trade is taking local jobs, protectionist sentiments are once again rising
across the advanced world. Excessive trade and current account imbalances are now politically as well as
economically unsustainable.

Number Crunching


38 thoughts on “The Mark Carney experience at the Bank of England

  1. The Bank of England are Corbyns best ally. The longer they keep rates down, the longer they keep on printing and coming up with scams such as Term funding Scheme the more inequality they create pushing more and more into voting Labour.

    As someone who thought he’d never vote Labour, i will do so next time round as the status quo is just socialism for asset/debt owners.

    • I would be licking my lips were I John McDonnell:
      1. First, you will not be alone in thinking that QE has just created wealth for the few and left everyone else behind; and
      2. QE will provide the magic money tree for all the things that were not costed in the Labour manifesto.
      He can then watch Marx’s predictions as to the collapse of capitalism from his front-row seat!

      • Capitalism has collapsed and has been replaced by some sort of Neo Feudal crony capitalism.

        Labour lacked the intelligence to raise the inequality cause by QE/ZIRP at the last election they probably think the electorate doesn’t understand whats going on despite the way people are voting showing otherwise.

        They’d clean up with the boomer voters if they suggested taking back power from the BOE to set rates which would benefit their savings and pensions.

        Many millions would also be glad their kids could move out and buy a house.

        Isn’t going to happen with Hammond and the Tory party though, as May has shown this group of PPE’rs and career politicians have not got a clue.

        • can who ever down votes comments please add a comment as to why ?

          I’d like to know you reason/s – really i do – this is not yer normal run-of the-mill blog and many intelligent people read it *


          * some of us may actually post rubbish in your opinion but life is a box of chocolates you know ( melted in today’s heat of course)

      • I’ve always thought the same thing James, but I believe it is worse than you imagine, I think we are headed to full blown communism, state ownership of the banks, endless QE to pay for ever greater government spending, a currency collapse? nay bother! if the currency doesn’t pay the bills the government will bring in the Universal Basic Income to eliminate poverty!!!

        Mark Carney will be Labour’s best friend if they ever get the keys to No.10.

        I think the people who plan the destruction of our country could not have imagined how easily or smoothly it is going.

  2. Hi Shaun – I think I’ll stick with Alice. She makes more sense.
    ‘More wage growth?’, asked the mad Hatter.
    ‘How can I have more when I haven’t had any yet’, said Alice.
    ‘Well you could hardly have less’, said the mad Hatter.


    What a dreadful state of affairs.

    • Hi Eric

      I marvel again and again at the prescience of Lewis Carroll. I guess it teaches us that the human condition and motivations change less than we often like to think.
      Meanwhile us Lions fans up here are beginning to have some hope and I do mean some hope no more….

  3. The appointment of Professor Silvana Tenreyro reminds me of Yes Minister. The idea being that you don’t try and change a persons mind instead you just appoint somebody who agrees with you in the first place.

    • Hi Bez

      That is such a brilliant episode which I remember well. I love the bit when Sir Humphrey explains that some judges appointed on such grounds go for a conviction with such obvious obsession that ” some juries acquit out of sheer bloody-mindedness”. 🙂

  4. There was almost a note of honesty in Carney’s comments about monetary policy, since it can and has influenced how the hit to incomes is distributed….between wealthy asset owners and low and middle income earners!
    Also, ‘the stimulus is working. Credit is widely available.’. Ever heard of systemic risk or experinced a debt and housing bubble imploding Mr C?

    • The answer Gus is a great big “nope”, and until interest rates go up your credit and housing bubbles cannot implode, QED as far as Mr Carney is concerned,and incidently, Carney has no intention of being around when eventually, the shtf, he will be sliding into Lagarde’s job or possibly a nice number at the Fed, or just sail into the sunset, totally blameless for the disaster he has created.
      What amazes me in all of this and the BREXIT fiasco, is that there is still support for the pound, in all my years of trading I cannot ever remember a situation where there has been such a guaranteed one way bet based on fundamentals, massive trade and budget deficits, a BREXIT disaster, and a central bank governor who wouldn’t raise rates if you put a gun to his head, it is literally the short of a lifetime, a guaranteed one way no lose bet.Below 1.15, it is all the way to zero, anyone seen Venezuela on the news recently?Sorry, I was forgetting the lifeline that will be offered before that happens -join the Euro?

        • Mr Jive, currency collapses occur suddenly, when everyone tries to get out at the same time, and literally noone wants to hold it,rate rises by then don’t work, this is why what Carney is doing is so dangerous,his arrogance is totally misplaced considering how close to 1.15 sterling trades.

  5. Great blog as always, Shaun. I can’t remember hearing of Silvan Tenreyro either. Since she graduated from the National University of Tucuman I presume that she comes from Argentina, a country notorious for the way it has manipulated and debased its inflation measures. It is somewhat unsettling to have an Argentinian appointed to the MPC just at a time when there is a push to make the CPIH the target inflation measure of the Bank of England.

    • Hi Andrew

      I believe she was born in Argentina and of course she may have left due to dissatisfaction with the economics there. But so far it looks as though she is part of the international “elite” that float from country to country like her two female predecessors Shafik and Forbes. Sadly of course the much brighter of those two left the UK and Shafik’s obvious incompetence was masked by giving her a Dame hood and sending her to the LSE.

  6. Hello, Shaun. Although he footnotes it, people unfamiliar with CanLit may not recognize that Carney takes the title of his Mansion House speech today from the novel “A Fine Balance” by Rohinton Mistry, a Canadian novelist who was born and educated in Bombay, India. When it was nominated for the Booker Prize (it didn’t win) apparently Germaine Greer declared on the BBC: “I hate this book. I absolutely hate it. It’s a Canadian book about India. What could be worse? What could be more terrible?”

    • “It’s a Canadian book about India. What could be worse? What could be more terrible?”

      (sighs) we found out when Carney became BoE chairman……


  7. Banking has redefined the term organised crime they are serial offenders,only idiots could lose money from an enterprise where you create money out of thin air and demand repayment of money you did not have plus interest.
    Interest rates cannot be raised or the Ponzi scheme economy hits the buffers sooner rather than later.
    The pound will fall much further as the Brexit talks produce the only outcome possible a much poorer Britain,you cannot leave any club then demand to keep certain benefits of membership,to believe so you must believe in a parallel universe.
    Carney is just another soundbite front man for a corrupt and failing monetary system.

    • Hi PrivateFraser

      Whilst I welcome the action of the Serious Fraud Office it’s track record bothers me. I remember discussing it at work some 20 years or so ago and us agreeing it might catch someone for £5k but not £5 million. The numbers are of course much larger now but sadly the principle seems to be the same…

  8. I don’t dissent one iota from your view of Carney; he has proven to be almost startlingly less competent than his initial billing with a string of missteps along the way.

    However, I do think that the delegation of more power to the BOE has not done them as many favours as are thought. Monetary policy has been forced to take centre stage whilst the fiscal stance has emphasized austerity. I know that the austerity has been more PR perhaps than the government would admit but there has been a reluctance to use fiscal policy in order to support growth and if Carney had suggested that fiscal policy does have a role to play in economic recovery (which I believe he has said at some time) then I suspect he would be politely ignored.

    Leaving monetary policy to carry all the load was almost certainly going to lead to bubbles (which it clearly has) and there’s no doubt that schemes like FLS and TFS have simply poured petrol on the fire and are what might be termed unforced errors so it is difficult to acquit the BOE of outright incompetence in its management of the situation.

    However, where interest rates are at the ZLB fiscal policy can play a huge role in supporting growth but what we have had is a fiscal policy driven by political imperatives to shrink the state rather than carry out an economic function. We still don’t have a credible fiscal policy as a sensible complement to what is within the BOE remit so I would say that Carney certainly has questions to answer but he also has some powerful co conspirators in the background who are equally responsible.

    • Hi Bob J

      If we look at the neatly 20 years of Bank of England independence we see a period where there has been a decline. Some of that is due to establishment capture and some is due to the fact that less able people are now being appointed. But there is also a theme as you say that across the world politician’s mostly left the economic stage and left matters to the central banks.

      As it is fiscal data day tomorrow I will look at austerity then but whilst overall it feels minor it has affected people. Only a couple of hours or so ago I was chatting to a friend whose wife lost her part-time job for Kent Council because of it for example.

      • Yes Shaun but unfortunately whilst fiscal expenditure on the common wo/man is reduced via pay freezes and job cuts the expenditure is ramped up on salaries of senior bankers in charge of insolvent banks receiving ever higher bonuses courtesy of the taxpayer for their continuing failure and further financing of said banks’ losses alongside fat juicy contacts to subcontractor private industry to carryout public functions where more money is required to be paid to the subcontactor than what was paid when the function was carried out in the Public Sector and it is that which has increased fiscal expenditure.

        Cut back that side of fiscal and there will be a queue of so called “captains of industry” at No 10 demanding the fiscal expenditure is not only restored but increased as well.

  9. Hi Shaun
    A fine blog on an infuriating subject.
    I still feel that unless one of the G8 countries
    has a financial collapse we will see much more
    of the same, look at Greece loaded with debt
    above the gunwales but still artificially afloat.
    The vast majority of the planet’s countries are
    in a huge financial mess and I do not see any
    end to this until a Black Swan event happens.

    Never cared for what they do.
    Never cared for what they know.
    But I know.


    Oh and what about the Barclay’s debacle, years
    of expense and waiting for a magic money fine
    and a few unproven trials. Is anyone else angry,
    because I am?

  10. The real hurdle we all have to face is the reality of what is happening.
    Economics in the UK is no longer a matter of science, social study or even politics, but of an Ideology.
    This Ideology is promoted across the full spectrum of human concern; economy, psychology, society and polity.
    Its aim is to promote the idea that the aberrant is normal.

    Thus mental health issues become ‘lifestyle choices’, ’emergency economic measures’ become ‘locking in the recovery’, any and all political opposition or questioning becomes ‘extremism’ and public debate becomes ‘hate crimes’.

    This capture of government by Corporate financial interests, is marshalled and directed by professional psychologists and communicators. Thus far, it has failed to gain total control – unlike the recent elections in France – and has been unsettled by Corbyn, Trump and Brexit.
    But its agenda of promoting the ‘hired lifestyle’ and pernicious wealth extraction is attractive, if temporarily, to some (looking at you pensioners).

    It is just fascism in a party frock; but fascism nonetheless.

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