Belfast Telegraph

Sunday 28 December 2014

Mark Carney - When speaking out bites back ... and with interest

The trouble with letting everybody know what you plan to do and when you plan to do it is that they expect you to live up to your promises.

Not, it seems, if you're the governor of the Bank of England.

Mark Carney's rip-roaring first few months in the well-upholstered leather chair in Threadneedle Street was characterised by a number of fresh ideas which showed he was willing to tinker with the central bank's steering.

He was all about forward guidance – not something that means the bank would change its own plans, merely that they'd reveal what they planned to do in the future.

That might not sound like much but it's the sort of thing which makes a bond trader spit out his or her Bollinger and run for the nearest spread sheet to figure out whether their forward curves are likely to gather or protect them from the rain.

Mr Carney's champers-choking pronouncement was that he wouldn't raise interest rates until UK unemployment reached 7%, something the numbers men and woman at the bank didn't think would happen before 2015ish.

But then boom!

On Wednesday it was the turn of the governor to spit out whatever is they quaff in headquarters at 9.30am on a work day as the unemployment rate fell to 7.1%, just a whisker off the interest-rate-hike-trigger-point.

The idea the central bank will raise interest rates at the moment is to most right-thinking economists a ludicrous idea and Mr Carney has said as much in the last couple of days.

While the jobs market seems to have picked up beyond everybody's wildest dreams, economic growth remains turgid and a hike in interest rates would merely hold us back even more.

It's more of an issue to us in Northern Ireland who are, as usual, shadowing the wider UK economy at a six-to-12-month lag.

So with the BoE now unlikely to raise rates even if unemployment does fall to 7%, where does that leave Mr Carney's forward guidance?

For now it looks fairly much redundant as few would believe the bank will act unless a number of other caveats, such as economic growth, come together at the same time.

Maybe Mr Carney would be best to resort to the kind of forward guidance his predecessor used: tell them nothing.

Then, at least, he won't be backtracking on his promises.

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