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Bank of England’s Mark Carney says infrastructure investment needed to boost growth

Bank of England governor Mark Carney has said more public investment in infrastructure and higher corporate spending is needed to boost the UK’s struggling economy.

Speaking to the House of Lords’ economic committee, Carney also said he expects interest rates to remain low for the foreseeable future as structural factors such as weak productivity weigh on the UK and other economies around the world.

Carney said these ultra-low rates – the UK Bank rate is currently at 0.75 per cent – meant borrowing to spend was appropriate to boost the economy.

“The positive of a low interest rate environment is it does add fiscal capacity,” he said, “so debt servicing costs are expected to be low for a while.”

“This is an environment in which the right infrastructure, the right corporate investment projects make sense and will be necessary in order to ultimately get us out of this situation,” he said.

Carney’s intervention will cheer Prime Minister Boris Johnson, who today gave his official approval to the controversial High Speed 2 rail link and said he would appoint a minister to oversee the project.

Johnson told parliament: “You know this country is being held back by our inadequate infrastructure.”

Earlier today Christine Lagarde, Carney’s counterpart at the European Central Bank, also called on governments to get spending to boost the Eurozone economy.

Lagarde said: “Monetary policy cannot, and should not, be the only game in town.”

Carney’s appearance in front of the Lords committee was the last of his eight years at the helm of the BoE. He will hand over to former Financial Conduct Authority chief and Bank veteran Andrew Bailey on 16 March.

Carney also addressed the UK’s long-running productivity crisis, which has seen output per hour worked – a key driver of economic growth – effectively flat-line since 2008.

He said that in recent years productivity had been held back by low investment due to Brexit uncertainty, raising the prospect that it could recover somewhat in the coming years.

However, he said there are signs that productivity growth has settled at a significantly lower rate than its pre-crisis trend.

Carney said if this is true, “it’s a good time to pass on the reigns to my successor as the disinflationary pressures in this economy are even greater than we expected”.

His warning echoes comments by former BoE deputy governor Sir Charlie Bean who told City A.M. this week that wage stagnation caused by weak productivity could undermine belief in capitalism.

Offering the Lords some of his thoughts on the UK’s productivity slowdown, Carney said poor infrastructure was one cause.

He also said that “the skills gaps” in the country and “the cluster effects” of modern economies were important factors, by boosting some regions at the expense of others.

By Harry Robertson

Source: City AM

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UK economy on course to stagnate in third quarter, says Bank of England governor

Bank of England governor Mark Carney has said that the UK’s economy is on course to stagnate in the third quarter.

He also said that underlying growth looked muted even with Brexit volatility stripped out.

Carney said Britain’s economy was “currently close to equilibrium, operating just below potential” in a speech at the Jackson Hole gathering of global central bankers.

The economy shrank in the second quarter for the first time since the global financial crisis a decade ago, due in part to companies preparing for the original Brexit deadline of end of March.

Earlier this month, the Bank of England forecast 0.3 per cent growth for the current quarter, but August business surveys have painted a bleaker image.

“The UK economy contracted slightly last quarter and surveys point to stagnation in this one,” Carney said. “Looking through Brexit-related volatility, it is likely that underlying growth is positive but muted.”

Despite this, the job market is still going strong with the fastest wage growth in 11 years and unemployment at near record-lows.

Meanwhile, Carney also said that weak business investment was an obvious result of Brexit uncertainty in the lead up to the 31 October leave date.

“There is overwhelming evidence that this is a direct result of uncertainties over the UK’s future trading relationship with the EU, and it serves as a warning to others of the potential impact of persistent trade tensions on global business confidence and activity,” Carney said.

The governor reiterated that the Bank of England may have to ease monetary policy to help the economy in the event of a no-deal Brexit, but added that there were limits to how much it could tolerate a rise in inflation caused by a falling pound.

Carney maintained that a no-deal Brexit was “not a given” despite its increased likeliness just two months out.

By Michael Searles

Source: City AM

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Mark Carney says negative interest rates ‘not an option’ for BoE

Bank of England governor Mark Carney has said his institution will not pursue negative interest rates, a monetary policy device employed by the European Central Bank (ECB) and Bank of Japan, among others.

“At this stage we do not see negative rates as an option here. I am not criticizing others that have used them, but we don’t see it as an option,” he told Central Banking magazine earlier this month in an interview published today.

Negative interest rates seek to encourage banks to spend their spare money by penalising them for keeping it in their country’s central bank.

The BoE has been less willing to cut interest rates than some of its peers. The US Federal Reserve last month cut interest rates by 25 basis points (0.25 percentage points) and the ECB has heavily suggested further stimulus is coming.

Carney’s Bank has kept the main interest rate – which determines the cost of lending in the economy – at 0.75 per cent, citing high employment and inflation close to its two per cent target.

Yet a no-deal Brexit on 31 October, the date Britain is scheduled to leave the European Union, could cause the Bank to lower rates to support the economy during a likely shock.

Carney told Central Banking that negative interest rates can be “counter-productive”. He said the Bank’s view “is that the effective lower bound is close to zero, but positive – just above zero.”

The governor also said he does not think changing the Bank’s inflation target, which is set at two per cent, is a good idea.

“I am not a big fan of changing the target,” he said. “If you are having trouble getting to two per cent it is not clear to me why moving to three per cent really helps.”

The Bank’s favoured inflation rate was 2.1 per cent in July, official figures showed earlier this month. Inflation in the Eurozone, on the other hand, was just one per cent in July, official data showed today.

By Harry Robertson

Source: City AM

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Senior MP asks Carney to clarify Brexit house price comments

A senior British lawmaker asked Bank of England Governor Mark Carney on Thursday to clarify whether he had told ministers that house prices in Britain could slump by about a third if the country fails to secure a Brexit deal.

Nicky Morgan, who chairs the Treasury Select Committee in Britain’s parliament, made the request in a letter to Carney in which she reiterated that the BoE should produce an analysis of the impact of Brexit before any vote on parliament on a deal.

Several British newspapers said last month that Carney told ministers in a private meeting that mortgage rates could surge and house prices fall by 35 percent over three years if there was a chaotic no-deal Brexit.

The BoE declined to comment on the reports at the time, and Carney did not address them directly in a public appearance on the day of their publication.

The reports revived criticism of Carney from some Brexit supporters who accused him of overstepping his remit when he warned in 2016 that Britain’s economy would be hit if voters decided to leave the European Union.

They were angered again by more recent comments from Carney saying the economy would be damaged if there is no deal to smooth Britain exit from the EU

Morgan, who opposed Brexit before the referendum, said in her letter that she wanted to know if Carney had been referring to the extreme financial scenarios used last year by the BoE for its tests of banks’ financial health, or if he was giving a more specific warning.

The Royal Institution of Chartered Surveyors said earlier on Thursday that Carney’s reported remarks had weighed on some of its members’ views about the outlook for the housing market.

“If you have anything further to add, both about the content and scope of your briefing, and the subsequent reporting of it, I would be grateful if you could do so in your response to this letter,” Morgan asked Carney in her letter.

The Treasury Committee has also asked Britain’s finance ministry and its Financial Conduct Authority regulator to assess the impact of Brexit.

Source: UK Reuters

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Bank of England’s Carney to stay until January 2020 to smooth Brexit

Bank of England Governor Mark Carney will stay at the central bank an extra seven months until the end of January 2020 to help smooth Britain’s departure from the European Union next year, finance minister Philip Hammond told parliament on Tuesday.

Carney had been due to step down at the end of June 2019 — having extended his term by a year already to cover the immediate months after Brexit — but last week he told legislators he would be willing to stay longer if requested.

British media had previously reported the finance ministry was keen for Carney to extend his stay and was having difficulty finding a suitable successor.

“I am willing to do whatever I can in order to promote both a successful Brexit and an effective transition at the Bank of England and I can confirm that I would be honored to extend my term to January 2020,” Carney said in a letter to Hammond.

Before Carney joined the BoE in July 2013, he said he only wished to serve five years of the standard eight-year term for a BoE governor to minimize his children’s time away from their native Canada.

Hammond said Carney would provide “vital stability” for Britain’s economy during the Brexit transition and the extension was also welcomed by Nicky Morgan, the chair of the parliament committee which monitors the BoE and the finance ministry.

Deputy Governor Jon Cunliffe would serve a second five-year term until October 2023, Hammond added.

Carney focused heavily on minimizing financial market turmoil in the run-up to June 2016’s European Union referendum and has warned since of the costs of a disorderly Brexit, drawing fire from Brexit supporters.

Nigel Farage, former leader of the pro-Brexit United Kingdom Independence Party, said the reappointment was “truly appalling”.

But financial market economists broadly welcomed the extension for Carney, who early during his period of office gained the moniker of an “unreliable boyfriend” due to mixed signals about the future path of interest rates.

Last November the BoE raised rates for the first time in more than a decade and increased them again last month, when Carney said that market expectations of a further rate rise a year for the next few years would be a reasonable rule of thumb.

“It would have been preferable to have avoided a piecemeal extension to his term at the Bank. But bearing in mind the uncertainties in the economy, I think it’s a good thing he’s staying,” Investec economist Philip Shaw said.

Source: UK Reuters

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Carney ‘asked to stay’ as BoE governor amid Brexit concerns

Bank of England (BoE) governor Mark Carney has been asked by the government to stay for another year in a move to settle the City’s Brexit concerns, according to a report.

This means Carney would remain BoE governor until June 2020, staying for an extra year on top of his original departure date of June 2019.

The report, in the London Evening Standard’s Diary section, claimed the chief reason would be so Carney could provide continuity following the UK’s exit from the European Union, which takes place on 29 March 2019.

However, a Treasury spokesperson denied the story.

Carney has already extended his term once at the Bank in a move to ensure continuity through the Brexit negotiations.

He had originally only intended to remain for five years after joining in 2013, but announced plans to stay an extra year four months after the Brexit Referendum in June 2016.

BoE deputy governors Ben Broadbent, Dave Ramsden and Jon Cunliffe are among the favourites to replace Carney, along with Financial Conduct Authority CEO Andrew Bailey.

In May, the governor warned economists about the dangers of a “disorderly Brexit”, adding monetary policy could be placed on a different path if the transition is not “smooth”.

In August, the Bank’s Monetary Policy Committee unanimously voted to hike interest rates by 25 basis points to 0.75%, the highest level in almost a decade and its first rise since November 2017.

Silvia Dall’Angelo, senior economist at Hermes Investment Management, commented: “It would be ideal if Carney decided to remain at the helm of the BoE for longer.

“It would provide continuity in the approach to monetary policy, shoring up business and consumer sentiment during the Brexit process and potentially allowing for a smoother transition.

“Reports he was asked to stay on until 2020 suggest there is broad-based awareness that continuity is needed at such a crucial juncture for the country.

“That said it is unclear whether the rock star governor is willing to accept what looks like an unpalatable offer.

“As the chances of a hard Brexit are “uncomfortably high”, risks that his otherwise stellar reputation gets smeared in a potentially disruptive process, are also elevated.”

Source: Professional Adviser

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After Carney surprise, chance of May BoE rate hike down but not out

Bank of England Governor Mark Carney surprised investors last week when he hinted that interest rates might not go up next month – but economists say it would be wrong to rule out an increase.

‘Forward guidance’ about central bank policy intentions was Carney’s signature policy when he arrived at the BoE from Canada in 2013. Yet even now, as he nears the end of his British sojourn, financial markets are still trying to figure him out.

“The Bank of England has been behaving like the Grand Old Duke of York,” said Lena Komileva, managing director of G+ Economics, likening Carney to the commander mocked in a British nursery rhyme for leading troops pointlessly up and down a hill.

Since the second half of last year, the BoE has warned that Britain’s economy is at risk of persistent inflation even as the approach of its exit from the European Union causes growth to lag that of other rich nations.

The BoE raised rates in November for the first time since 2007, and in February Carney and his fellow rate-setters said interest rates might need to rise slightly faster than the bank judged that markets were expecting.

In March, two members of the BoE’s Monetary Policy Committee voted for a rate rise and economists were confident an MPC majority would back a rise to 0.75 percent in May.

This all changed on Thursday when Carney alluded to “mixed data”, differences of opinion on the MPC and the possibility of rate rises later in the year in a BBC interview.

Sterling tumbled by more than a cent, short-dated bond yields recorded their biggest fall this year, and financial markets chopped the odds on a May rate rise to less than 40 percent from 65 percent before, according to Thomson Reuters calculations. BOEWATCH


Investors should not lose track of the bigger picture, said Mike Amey, a fund manager at PIMCO, the world’s largest bond investor, as market pricing of the chance of a May move crept back up to around 50 percent.

“Whether they hike in May or not is an open question,” Amey said. “But we think the underlying momentum in the economy is holding up quite well, and therefore that in due course we will see higher rates than are currently priced in for the next couple of years.”

PIMCO expects BoE rates to rise once or twice both this year and next – compared with the single rate rises in November 2018 and August 2019 factored in by markets.

April purchasing managers’ surveys from British businesses will probably be more important for the BoE’s May decision than the weather-affected preliminary first-quarter gross domestic product figures on Friday, Amey added.

Overall, the economy has held up better than most economists expected after the June 2016 Brexit vote, despite lagging the global rebound. And the high inflation that hit consumer demand last year is slowing as sterling recoups some of its losses.

Unemployment has fallen to a 43-year low of 4.2 percent, and a record proportion of Britons are in work.

Komileva said she saw little case to delay a rate rise.

“If the Bank were to miss May, it would create serious questions about … what it would take for them to move again,” Komileva said.

The BoE’s signals on rates felt more arbitrary than those of the U.S. Federal Reserve or the European Central Bank, she said.

Fed policymakers make individual projections for rates while ECB President Mario Draghi regularly offers hints on policy.

This is not the first time markets have been jolted by Carney. In 2013 the BoE linked policy to the jobless rate, only for unemployment to fall far faster than policymakers forecast. And in mid-2014 and mid-2015 Carney suggested rates might rise sooner than markets expected – only to backtrack both times.

Just two months ago, Carney had said he felt he could stop giving hints on rates because markets understood the BoE’s thinking well enough to draw their own conclusions.

After that, Brexit worries eased as Britain secured an outline Brexit transition deal until the end of 2020, and economists said signs of economic weakness were the result of freak snow storms, adding to the sense that another rate hike was coming.


The missing piece of the picture for the BoE is wage growth, the key factor for inflation pressure. At an annual 2.8 percent, wage growth is roughly in line with BoE expectations but remains weak by historic standards, especially given low unemployment.

Former BoE policymaker David Blanchflower thinks the central bank should hold off raising rates and look harder at the number of people in part-time work but who want to work longer hours, suggesting wages are unlikely to pick up sharply.

The BoE might feel it has more time to see if wages rise after a bigger-than-expected fall in inflation in March. Furthermore, sterling’s recent recovery should curb inflation pressures.

Even Michael Saunders – who voted for a rate rise last month and looks set to do so again – has said the muted response of wages to the fall in unemployment defied simple formulae.

For now, economists are still trying to gauge whether Carney’s comments were a warning that rates are unlikely to rise in May.

Alan Clarke at Scotiabank, who has dropped his forecast of a May rate rise, said they were probably intended to stop MPC members feeling they were committed to a hike next month.

Komileva said they might have the effect of dissuading wavering MPC members from backing a rate rise for fear of wrong-footing markets again.

But HSBC economists Simon Wells and Elizabeth Martins – who for now are holding with their view of a May rate rise – said they would take the comments with a grain of salt.

“Not reacting to every word the BoE utters has been a good strategy recently. We stick to this.”

Source: UK Reuters

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UK could recouple with global economy this year – Carney

LONDON (Reuters) – Bank of England Governor Mark Carney said Britain’s economy could start to grow more quickly and stop lagging behind the global economy later this year if there is clarity about Britain’s future relationship with the European Union.

“The world economy is accelerating, and we haven’t seen that yet,” Carney told BBC radio in an interview on Friday.

“There is the prospect this year, as there is greater clarity about the relationship with Europe and subsequently with the rest of the word, for a recoupling – if I can use that term borrowed from Gwyneth Paltrow – a conscious recoupling of the UK economy with the global economy.”

Britain grew more slowly than every other G7 country over the first three quarters of 2017 after the 2016 Brexit vote.

Official data due later on Friday is expected to show growth remained unchanged in the fourth quarter.

Most economists expect the BoE will raise interest rates towards end of 2018, but some think it could move as soon as May. The central bank raised rates for the first time in more than a decade in November as it saw signs that wages would rise more quickly after falling behind inflation.

Carney told the BBC that Brexit had cost Britain’s economy tens of billions of pounds in lower economic growth and companies had scaled back on their investment as they waited for more clarity on what Brexit means for them.

“Investment in advanced economies is growing at double-digit rates, and it is low single digits here,” he said.

Carney said he would not provide updated forecasts for Britain’s economy ahead of the BoE’s quarterly inflation report which is due to be published on Feb. 8.

Source: UK Reuters