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Treasury Today July/August 2013 magazine Buy print copy button

July/August 2013

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Editorial

A Canadian walks into the Bank…

This may sound like a good start to a joke, but Mark Carney’s first week has shown that he is serious about shaking things up as Governor of the Bank of England (BoE). In an attempt to shed his ‘rock star’ celebrity status for a more ‘man of the people’ image, Carney joined other City commuters in taking the tube to work and agreed to meet a group of protestors to review female representation on bank notes.

More importantly, he stood shoulder-to-shoulder with Mario Draghi, European Central Bank (ECB) President, to squash any expectations for an early rise in interest rates, a move which sent stock markets soaring and devalued the pound. Carney said that investors were “not warranted” in thinking that interest rates would start rising from the end of next year, as markets currently expect. This statement radically broke with existing protocol by setting out a potential timeframe for rate policy – coined ‘forward guidance’.

Carney also took the unusual step of issuing a statement after his first Monetary Policy Committee (MPC) meeting. In it, the MPC said: “The significant upward movement in market interest rates would weigh on” growth and that the recent “implied rise in the expected future path of bank rate was not warranted by the recent developments in the domestic economy”. Additionally, Carney left the door open for more quantitative easing (QE), in response to the Chancellor’s request that the BoE examine alternative strategies in time for next month’s meeting.

As the first non-British appointment to the post in the 319 year old institution, Carney is going to have to go the extra mile to prove himself – and the increased level of transparency he is putting in place might go a long way in helping his cause. But he has his work cut out for him: the UK economy is still in a weak state and there are major divisions within the MPC. Sir Mervyn King, Carney’s predecessor, faced many months of opposition to suggestions for expanding the BoE’s policy of QE.

Carney is no stranger to conflict, as evidenced by his very public spat over the implementation of Basel III with J.P. Morgan CEO Jamie Dimon in 2011, when Carney was Governor of the Bank of Canada. In one of his many shots across Dimon’s bow, Carney stated: “If some institutions feel pressure today, it is because they have done too little for too long; not because they are being asked to do too much, too soon.”

As one of his fellow Canadians and former government colleague, Scott Reid, said: “He’s going to tear through London like a lion.” And that may not be a bad thing.