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Monetary policy overburdened, says Bank governor Carney

Published 25/10/2016

Mark Carney said the Bank's policies could not 'do it all'
Mark Carney said the Bank's policies could not 'do it all'

The governor of the Bank of England has said monetary policy has become overburdened and he would welcome Government policies to help boost the economy.

Speaking to the House of Lords Economic Affairs Committee, Mark Carney said the Bank's policies could not "do it all".

"Monetary policy has been in many respects overburdened in providing support to the economy," he said.

"The Government has signalled some resetting of that burden between monetary, fiscal and other policies and that is welcome."

He said earlier this month that the Bank would not take instructions on its policies from politicians, just a week after Prime Minister Theresa May took a swipe at the impact of the Bank's actions on "ordinary" people.

Mr Carney said the Bank's independence was not under threat because there were no plans for Parliament to debate a change to its remit.

Mr Carney also moved to address criticism from Mrs May, who used her Tory conference speech to launch a surprise attack on the Bank, saying there had been "bad side-effects" from its moves to slash interest rates and shore up the economy since the financial crisis and promising "a change has got to come".

On savers, who have been hammered by low interest rates, the governor said: "To target a specific group to a large subset is not consistent with overall support, for providing prosperity.

"There's not one group who are saving and one group that are asset holders. There is a big group who have debt and no assets ... which is partly a legacy of the previous crisis."

However, he recognised the plight of savers, adding: "Yes, absolutely, we have sympathy, yes we understand frustrations.

"Our contribution is to focus on our remit to get this economy in a position where inflation is where it needs to be and then move forward."

Speaking about the concerns surrounding a potential exodus of jobs and financial services from the City of London in the wake of the Brexit vote, Mr Carney said some global banks would be in a position to "adjust some activity over the course of the next year if they saw fit".

The comment came in response to a statement made last week by Anthony Browne, chief executive of the British Bankers' Association (BBA), who said b ank bosses had their hands "poised quivering over the relocate button" as Britain embarks on its exit from the European Union.

Mr Carney said there were a "range of possible adjustments" the British Government could make with Europe, which would allow activities to continue for a wide range of institutions.

He added that Britain's financial services sector should still have equivalent rules to Europe after Brexit.

"I will say that there are a number of reasons why it is reasonable to expect that this would be given serious consideration in the European Union," he added. "These include that from the start we are equivalent. The Great Repeal Bill will leave us with exactly the same rules."

The prestige of the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) means Britain has the greatest experience for supervising large and complex financial institutions in the world, the governor added.

He said: "In some respects we are super-equivalent."

Asked about how the City of London can protect its position as global financial centre and hold onto euro-dominated clearing, Mr Carney said nations do not have to clear their currency in their own jurisdiction.

He said he had taken the "positive decision" during his former role as governor of the Bank of Canada to move Canadian dollar clearing to London because it benefited Canadian corporations.

However, h e said the debate over whether euro clearing should leave London after Brexit had "absolutely entered the political realm".

Speaking about quantitative easing (QE), the governor said the Bank's Monetary Policy Committee (MPC) was "mindful of the side effects" when it took the decision to slash interest rates and fire up the printing presses again in August.

He said the Bank took into account the impact on pension funds, insurance companies and on banks to make sure the negative effects of the decision did not outweigh the positives.

Mr Carney said inflation's jump to 1% in September was not caused by the plunge in the value of the pound pushing up prices, but by the rising cost of clothes and more expensive fuel.

However, he said sterling's slump will begin to be felt in consumer prices "relatively quickly", with inflation rising to 1.5% or 1.8% by the spring.

Press Association

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