Mark carney

It is more than three years since Bank of England governor Mark Carney was accused by Labour MP and Treasury Select Committee member Pat McFadden of behaving like ‘an unreliable boyfriend, one day hot, one day cold’ in his hints about forthcoming interest-rate rises. And it’s more than a decade since the last time the official UK bank rate actually moved upwards: the only shift since McFadden’s remark has been a cut from 0.5 per cent to 0.25 per cent in August last year. In fact there’s a palpable sense that the Bank, in common with other central banks, has all but lost the power to deploy interest rates as a monetary tool, having left them so low for so long.

House prices are in freefall. Unemployment is rising relentlessly. The pound is plunging on the markets, and companies are re-locating to Paris and Frankfurt in droves. In the parallel universe Mark Carney increasingly seems to live in, that is a pretty accurate description of the British economy. In this universe, however, the picture is very different. The economy is doing just fine – and that is making it increasingly hard to understand why interest rates are being held at ‘emergency’ levels to cope with the ‘catastrophe’ of leaving the European Union. At a meeting of the Monetary Policy Committee yesterday, the Bank left rates on hold at 0.25 percent, while hinting that might finally go up next month.

Mark Carney is often accused of being downbeat about Brexit. But the Bank of England’s quarterly inflation report is ‘more sanguine than one might expect’, says the FT. The paper points out that despite a cut in the country’s growth forecast, the Bank ‘expects stronger net trade and business investment to drive a recovery in 2019’. Yet Carney remained ‘candid’ about the damage Brexit is already doing to Britain's economy. Businesses are investing less, reports the FT, and ‘this has uncomfortable implications’. With the Bank warning that ‘the level of investment in the UK economy (will be) be 20 percentage points lower in 2020 than it forecast before the referendum’, this damage looks sure to continue.

I voted Remain last year for two reasons. First, however irritating I found some aspects of the EU, I could not vote for the chaos I believed would follow a Leave victory. From the accession of Theresa May to the night of the general election, that looked like an excess of pessimism; now it looks like wise foresight. The second prong was an analysis of my own and my neighbours’ economic circumstances: in what sense was EU membership actually making us worse off? In my own case, not at all; local shops, hospitality outlets and tourist attractions, likewise. Subsidised hill farmers and fatter farming cats on the flatlands? Not really, even though broader frustration with Brussels made many of them vocal Brexiteers.

Yesterday Mark Carney – who hates it when politicians say anything about him – had a pop at Boris Johnson, ridiculing his optimistic approach to Brexit as seeking "cake and consumption”. Set aside the impropriety of the Bank of England governor making such a political swipe, Brexit was a deep psychological blow for people like Carney - but at least managed to give him an excuse to keep the economy on the drug of rock-bottom interest rates. Employment is at a record high, inflation is over the target but Carney said yesterday that he still doesn’t think it is “the time to begin that adjustment” – i.e. rate rises. The thing is, it’s not up to him.

As double acts go, it is probably not up there with Eric and Ernie, John and Paul, or even Liam and Noel. Even so, Mark and Phil, the Governor of the Bank of England Mark Carney and the Chancellor of the Exchequer Philip Hammond, certainly looked today as if they were working in tandem to try and steer the country towards a gentler version of Brexit than some of the harder men of that movement would prefer. Anyone listening to their speeches in the City this morning, postponed from last week in the wake of the Grenfell Tower tragedy, will have seen immediately what they were up to. Carney was at pains to point out that while the economy had been resilient in the immediate aftermath of the referendum vote last summer, there would still be tough times ahead.

No time has been lost in blaming Brexit for today’s rise in the Consumer Prices Index (CPI) to 2.9 per cent. It wasn’t just those on the left, either. The head of Theresa May’s policy unit, George Freeman, tweeted this morning: 'This is reality of the devaluation of the £ post Brexit'. While George Freeman has always been a staunch Remainer, the fact he put this out is possibly indicative of a change in attitude at Number 10 – an attempt to reach out to those in the party who continue to believe that Brexit is a mistake. Yet the longer the rise in CPI goes on the less it looks like an adjustment to a lower pound and the more it begins to look like a consequence of excessively-loose monetary policy.

Inflation is rising. Real wages are stagnant, and GDP is being revised downwards, putting us down there with the likes of Italy. If Theresa May had a script for the final fortnight of the election campaign it probably didn’t include figures like those. Today’s revision of the quarterly GDP number, down to a sluggish-looking 0.2 percent, from the initial 0.3 percent, will no doubt be seized upon by critics of the government, and by the increasingly battle-weary battalions of hardcore Remainers, as evidence that the wheels are finally coming off the economy, and the impact of a ‘hard Tory Brexit’ is finally being felt. In fact, however, it tells us something quite different. The UK is certainly slowing down in the first half of this year.

So, the Office of National Statistics has confirmed that the economy grew by 0.7 per cent in the last quarter of 2016, and by 1.8 per cent over the course of the year. Can we now please stop worrying about a post-Brexit recession and worry instead about an unsustainable consumer boom fed by interest rates which remain at panic levels. The bad news this morning is that the UK saving ratio – which is an estimate of the percentage of their income which households are saving – has fallen sharply from 5.3 per cent to 3.3 per cent. That takes it lower than it was a decade ago, just before the financial crash, and indeed is the lowest level measured in half a century. As Helen Nugent wrote here yesterday,  consumers are piling on credit card debt at the fastest rate in a decade.

It is possible that Mark Carney is not quite the last person to notice that the post-Brexit economy is positively booming. Jean-Claude Junker might be too busy working out new ways to ‘punish’ Britain to have paid attention to the statistics. Gina Miller is possibly working on some bizarre High Court action to keep us in the EU. There might even be a leader writer somewhere at the FT who is still worrying away about the collapse of the economy. But just about everyone else has woken up to the fact that ever since we voted to leave the EU, the British economy, far from falling off a cliff, seems to have got markedly better. So Carney may not be absolutely the last person to the party.

It has been clear for some time that the pre-referendum warnings made by Bank of England governor Mark Carney were wide of the mark. Last May, he said that a vote for Brexit would pose an ‘immediate and significant threat’ to the UK economy, increasing unemployment, hitting growth, possibly to the point of recession. Today, however, the bank effectively admits that it was still being far too gloomy about the economy even last November. It upgraded its forecast for economic growth in 2017 from 1.4 per cent (as announced in the Autumn statement) to two per cent – saying that consumer spending has been stronger than expected and that the global economy as a whole has been performing better. The wonder is now why on Earth the Bank of England kept interest rates at 0.

The Guardian has a very significant story on its front page tomorrow. It has obtained notes of a meeting that Michel Barnier, the EU’s chief negotiator, had with senior MEPs this week. These notes show that Barnier told them that he wanted a ‘special’ deal that would guarantee access for the EU firms and countries to the City of London’s financial markets. Interestingly, Barnier also said—according to The Guardian’s account—that ‘There will need to be work outside of the negotiation box … in order to avoid financial instability.” This suggests that Barnier shares Mark Carney’s view that there are financial stability risks for Europe if the EU cuts itself off from the City of London.

Mark Carney made himself some enemies during the referendum. It wasn’t only his gloomy prophecies that caused trouble. His willingness to speak out in the first place was enough to anger those who thought he should keep shtum on a politically-loaded topic like Brexit. Today, though, we saw a different Carney. Gone was the gloominess, and in place of his warning that the referendum was ‘the most significant’ risk to Britain’s financial stability, came the verdict that Britain was largely out of that particular storm.

With Mark Carney stepping down from his role as governor of the Bank of England in 2019, it's been widely reported that relations between Carney and Theresa May are strained. As James Forsyth writes in The Spectator, the Prime Minister managed to rub Carney up the wrong way with her Conservative conference speech when she appeared to criticise central banks and citizens of the world. At today's Treasury select committee, Carney denied that May's comments played a role in his decision to extend his contract by just 12 months. He did, however, appear to take a swipe at May over her choice words.