Tag Archives: Mark Carney

Banking, Britain, Economic, Government, Politics, Society

Carney says leaving the EU could restore faith in democracy

BREXIT

THE Bank of England Governor has said that Brexit could restore faith in free trade and democracy if the UK leaves the EU with a deal.

In a statement that is sharply at odds with his previous warnings that Brexit could spark chaos, Mark Carney said that a managed departure would show voters that they matter and encourage them to trust the parliamentary system again.

But he also warned that a No Deal Brexit would spark an economic shock – something which he says the whole world should be trying to avoid.

The Governor said millions of workers feel let down and left behind by globalisation – and the only solution is to give power back to the people.

He added that a Brexit deal may be a step towards a world where families are comfortable with free trade because they feel in control.

The Governor said: “In many respects, Brexit is the first test of a new global order and could prove the acid test of whether a way can be found to broaden the benefits of openness while enhancing democratic accountability.

He said Brexit could lead to new “international cooperation”, allowing for better cross-border trade deals and a more effective balance of “local and supranational authority”.

Mr Carney’s backing for Brexit if a deal is struck marks a major change of tone.

He has long been accused by Eurosceptics of opposing our departure from the EU and whipping up Project Fear.

And in the run-up to the referendum, he was attacked for politicising the Bank of England when he claimed Brexit could trigger a recession.

Last year, Mr Carney claimed the vote to leave had cost households £900 each by damaging economic growth – and he has always been one of the loudest critics of No Deal.

The Bank also claimed No Deal could tip the UK into its worst recession for a century, knocking a third off house prices and triggering a dramatic surge in unemployment.

Mr Carney warns again that a deal is needed to avoid chaos – although he does sound more upbeat about the future following an orderly exit from the EU than he has done previously.

The Governor said Britain’s departure from the European Union comes at a time of growing risks for the global economy. The Canadian also said that No Deal would be “a shock for this economy”, and that UK investment has not grown since the referendum of 2016 was called, saying it had “dramatically underperformed”.

Mr Carney used his speech – given to senior business figures at London’s Barbican – to warn them that China is increasingly risky and businesses around the world are taking on worrying levels of debt.

He said: “China is the one major economy in which all major financial imbalances have materially worsened. While China’s economic miracle over the past three decades has been extraordinary, its post-crisis performance has relied increasingly on one of the largest and longest running credit booms ever.

A 3 per cent drop in the Chinese economy would shave 0.5 per cent off the UK, he warned.

On Corporate debt, he said a surge in high-risk business lending has worrying echoes of the US boom in unsustainable loans which led to the 2008 financial crisis.

Mr Carney also took a swipe at Donald Trump, who has cracked down on imports from China. The US President once tweeted: “Trade wars are good and easy to win.”

Mr Carney batted away Mr Trump’s casual brag, saying: “Contrary to what you might have heard, it isn’t easy to win a trade war.”

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Britain, Business, Economic, Government, Politics

Carney: A Brexit investment boom once deal with Brussels is signed

ECONOMIC

Carney

Mark Carney told MPs on the Treasury select committee an investment boom will follow once a Brexit deal with Brussels is agreed.

THE Bank of England’s Governor Mark Carney has predicted that businesses will launch major investment drives after Britain signs its Brexit deal with Brussels.

Mr Carney said many firms had put off important spending decisions since the referendum but may turn on the taps when Britain’s future relationship with Brussels becomes clear.

In comments highlighting the importance of striking a deal, he claimed that families were already £900 a year poorer than they would have been if Britain had voted not to leave the EU.

But he said there may be a pick-up in economic growth and productivity once Brexit is settled.

Appearing before MPs on the Treasury select committee, he added: ‘It’s understandable businesses are holding back – there are some big, big decisions that are about to be made.

‘I could build a case to say that actually business will use those clean balance sheets, access finance and start to put capital to work, and we should see a sharp pick-up in business investment.’

Mr Carney – who warned before the 2016 referendum that Brexit could be an economic disaster – added that the economy was as much as 2 per cent smaller than it would have been if Britain had chosen to remain.

Mr Carney said: ‘Real household incomes are about £900 per household lower than we forecast in mid-2016, which is a lot of money.’

The comments drew an immediate riposte from Foreign Secretary Boris Johnson, a leading Brexiteer.

On a visit to Buenos Aires, Mr Johnson rejected the Governor’s view and argued that Britain will prosper outside the EU thanks to new trading opportunities with countries such as Argentina.

Pro-Brexit MP John Redwood dismissed the claims that families were £900 worse off, saying: ‘I see no evidence.’

John Longworth, former director-general of the British Chambers of Commerce, said: ‘He’s basing that number on forecasts which were flawed. There are lots of factors influencing that number.’

GOVERNMENT BORROWING

BRITAIN’S borrowing is at its lowest for 16 years as rising tax receipts confound warnings of economic doom following the Brexit referendum.

In a sign that the vote to leave the EU has done nothing to derail plans to put the country’s finances back on a stable footing, the Office for National Statistics (ONS) said the Government borrowed £40.5billion last year – down from £153billion in 2009-10 under the last Labour government.

It is also around half the amount George Osborne predicted Britain would borrow last year in the event of a Brexit vote.

The figures give the lie to warnings that the decision to leave the EU would crash the economy and hammer tax receipts.

Instead, last year’s deficit was 2 per cent of national income – the lowest since 2001-02, when Tony Blair and Gordon Brown began a debt-fuelled spending spree.

When the Tory-Lib Dem coalition came to power in 2010, the deficit stood at 9.9 per cent of gross domestic product.

Liz Truss, Chief Secretary to the Treasury, said: ‘Borrowing as a share of our economy is at a 16-year low.

‘This is testament to the hard work of the British people as we fix our finances and build a Britain fit for the future.

‘We are strengthening the economy whilst cutting income tax and investing in public services. Labour would put that all at risk with their bonkers borrowing binge.’

In the so-called dossier of dome issued two years ago, former chancellor Mr Osborne said borrowing would hit almost £78billion last year if voters opted for Brexit.

In the Autumn Statement in November 2016, the Office for Budget Responsibility (OBR) pencilled in borrowing of £59billion as it warned of the impact of the Brexit vote.

In fact, the Government borrowed £40.5billion as tax receipts rose 3.4 per cent to a record £701.8billion. Corporation tax receipts rose 6.3 per cent to £57.7billion.

It borrowed a further £7.8billion in April, the first month of the fiscal year – down from £9billion in the same month last year.

Receipts from income tax and capital gains tax jumped 12.3 per cent to £12.8billion last month as record levels of employment boosted Treasury coffers. VAT receipts rose 2.8 per cent to £11.5billion.

The figures will put pressure on Chancellor Philip Hammond to ease austerity and free funds for public-sector pay rises.

But with the national debt close to £1.8trillion, or 85.1 per cent of national income, he will be reluctant to embark on a spree.

The national debt has risen nearly six-fold since 2000, from just over £300billion to nearly £1.8trillion.

The Government spent £54.6billion in debt interest payments alone last year – which equates to more than £1billion a week.

INFLATION

PRICES are rising at the slowest pace for more than a year in a boost to millions of families, official figures show.

The ONS said the annual rate of inflation fell from 2.5 per cent in March to 2.4 per cent in April.

That was the lowest level since March last year and down from a post-Brexit referendum peak of 3.1 per cent in November.

Inflation has risen by far less than feared since the Brexit vote and now appears to be heading back towards the 2 per cent target, easing pressure on family finances.

Two years ago, then Chancellor George Osborne warned that a Brexit vote would push inflation towards 5 per cent this year. Instead, it is only a little above the 2 per cent rate the OBR forecast for 2018 had the country voted to remain in the EU.

Brexit supporters branded the warnings issued by Mr Osborne and other Remain campaigners ‘ridiculous and outrageous’. With inflation falling and wages rising at the fastest pace for more than three years, analysts have said that ‘things are looking up for UK households’.

Chancellor Philip Hammond said: ‘Good news on inflation – it fell to 2.4 per cent in April and is expected to keep falling. With wages going up that means more money in people’s pockets.’

However, it is feared that the rising oil price may keep inflation above the 2 per cent target for longer than hoped as the cost of petrol and diesel increases.

The ONS figures follow a string of reports showing UK employment at a record high, unemployment at a 43-year low across the country and government borrowing at the lowest level for 16 years.

The flurry of upbeat economic data contrasts with warnings that the Brexit vote would crash the economy.

Before the referendum, Mr Osborne warned of an ‘immediate and profound shock to our economy’ that would plunge the UK into recession, put as many as 820,000 out of work and result in government borrowing of almost £78billion this year.

Instead, the UK economy has grown for seven quarters in a row since the referendum, employment has risen by 609,000, unemployment has fallen from 4.9 per cent to 4.2 per cent, and borrowing was around half what Mr Osborne claimed it might be.

Conservative MP Andrew Bridgen said: ‘As time progresses, people are seeing just how ridiculous and outrageous this was. There must be many people who voted Remain who now regret it, who were intimidated by the prophets of doom and gloom.’

Oil prices have been climbing after US President Donald Trump said the country would leave the Iran nuclear deal, raising the prospect of a fall in supply from the Middle East.

Brent crude surged above $80 per barrel last week, sparking fears of further fuel price increases.

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Banking, Britain, Business, Economic, Finance, Financial Markets, Government, Society

Bank of England Governor turns fire on bankers…

BANK REFORM

… The bank governor is determined to prevent a Japan-style economic crisis in the UK.

The new Bank of England governor, Mark Carney, has launched a stinging attack on ‘socially useless’ bankers and has called for a ‘change of culture’ in the industry.

The former Golden-Sachs executive, who succeeded Lord King as governor of the Bank of England last month, hit out at self-obsessed bankers who are, he says, detached from reality.

The Canadian has also defended the decision to peg interest rates to unemployment – a move that looks set to see rates remaining at 0.5 per cent for at least another three years.

Mr Carney expressed ‘tremendous sympathy’ for savers who have ‘done the right thing’ but insisted drastic action was needed to ‘secure the recovery’ and prevent a Japanese-style economic crisis in Britain.

This followed his announcement last week that the Monetary Policy Committee (MPC) will not raise rates from o.5 per cent until unemployment falls to 7 per cent or lower. Unemployment is currently running at 7.8 per cent and is not expected to reach the new threshold until the end of 2016.

Turning his fire on the banking industry, Mr Carney said:

… There has to be a change in the culture of these institutions.

He said that ‘finance can absolutely play a socially useful and economically useful function’, but added it must focus on ‘the real economy’. The Bank governor said banking is ‘socially useless’ when it becomes ‘disconnected’ from the economy and society and ‘only talks to itself’.

Mr Carney, who is also chairman of global banking watchdog the Financial Stability Board, added:

… A lot of what we are doing internationally is to strip out this type of behaviour.

The Canadian said the decision to peg interest rates to unemployment – a tactic known as ‘forward guidance’ by central banks – would boost the economy by ‘more than half a percentage point of GDP’ over the next three years.

Amid a fierce backlash from savers he insisted low rates were required to ensure the economy finally recovers from the biggest boom and bust in history.

‘The best way to get interest rates back to normal levels is to have a strong economy,’ he said. ‘We’re in the very early stages of a recovery from the weakest period on record.’

He said Japan made two mistakes after its recession in the early 1990s – failing to fix the banking system and pulling back from measures to stimulate the economy too quickly.

… As a consequence, almost a quarter of a century later, interest rates are still at rock bottom levels in Japan… We don’t want to make those mistakes here in the UK.

COMMENT

Mark Carney’s predecessor, Lord King, started a hard line on the need for banks to reform their cultural practices, by being useful contributors to society and by insisting that they strengthen their balance sheets so they no longer expose the taxpayer to excessive risk.

In some recesses of the banking sector, the appetite for running their operations on wafer-thin levels of capital remained undiminished by the worst financial crisis the world has ever seen.

Some in the City of London had hoped that Mr Carney would administer a snub to King by letting off bankers more lightly.

Given the governor’s role as chairman of the Financial Stability Board, and his personal championing of higher leverage ratios whilst at the Bank of Canada, that always seemed improbable – and so, thankfully, it has proved.

The Bank of England governor, Mark Carney, has defended the decision to peg interest rates to unemployment – a move that looks set to see rates remaining at 0.5 per cent for at least another three years.

The Bank of England governor, Mark Carney, has defended the decision to peg interest rates to unemployment – a move that looks set to see rates remaining at 0.5 per cent for at least another three years.

In his first public pronouncement on the subject Mr Carney made it crystal clear that he, no less than King, wants the banks to start serving the real economy instead of just themselves. He made a point of praising King’s work in improving bank balance sheets and of name-checking Andrew Bailey, who heads the Prudential Regulation Authority, the body that controversially forced Barclays and Nationwide to raise more capital.

The governor’s backing for the moves to make these two financial institutions formulate credible plans to increase their base capitals can longer be in question.

The great myth put about by the banking lobby is that higher levels of capital automatically constrain their ability to lend to households and firms and so hold back growth at a time when the economy is weak.

Whilst this seems to be a notion that has been swallowed wholesale by some in the Treasury and the Department of Business, it is not true.

Banks can improve their capital position by retaining earnings, scaling down bonuses and cutting back on other types of less socially useful business.

The new rules will, over the long-term, increase lending to the real economy, not harm it, and will give us safer and more secure banks, which can only be good for stability and growth.

Undoubtedly, there are plenty of questions over Mr Carney’s big idea of forward guidance, from the impact it will have on savers and on pensions, the risks to inflation and the distinct absence of a clear message due to the get-out clauses.

But on bank reform and conditions for capital holdings, Mr Carney should be applauded.

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