Why should we believe Mr Carney on Brexit?

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John Redwood’s latest blog discusses Mark Carney’s intervention in the Brexit debate.

Mr Carney gave unfortunate testimony to the Treasury Committee yesterday, which has been spun as helpful to the Better Stay in Europe campaign because he did not set out the pluses of leaving as well as he could.

Mr Carney of course now has a UK track record of making inaccurate or unhelpful forecasts. Throughout his time as Governor he has not used his main power, the power with the MPC to shift interest rates. When he first arrived he introduced forward guidance. He told us interest rates would not go up before unemployment fell below 7% but implied they might after that.

When unemployment fell below 7% he gave different guidance on raising rates. He said he would look instead at wages, spare capacity and productivity to decide when to put up rates. Unemployment was clearly no longer a guide to capacity or inflationary pressures.

When real wages and productivity started rising and more growth occurred, he then said in the summer of 2015 the decision on raising rates would “would come into sharper relief” at the turn of 2016.

When 2016 turned there was another change of tack. We were told that growth was lower so there would be no rate rise.

Markets, who had expected interest rates to be at 2% by 2017, have adjusted to rates still being at 0.5% in March 2016, with no immediate impulse from the Bank to raise them.

I set this all out now because it serves to remind us how Mr Carney has so far been unable to issue decisive guidance or to estimate the likely path of inflation, growth and money accurately. It should lead all to ask why then should we think his views on Brexit any better informed?

The Bank he represents has a long history of catastrophic misjudgement on the UK economy prior to his arrival. This is the Bank that recommended entry into the European Exchange Rate Mechanism, which first created a bad inflation, and then a nasty recession. This is the Bank that presided over the credit crunch and did not use its facilities to keep solvent banks sufficiently liquid at the height of the crisis. In both cases the Bank ignored advice from those of us who thought the ERM would do damage, and who thought the Bank should lend short term to commercial banks in need whilst at the same time working behind the scenes as one of their regulators to get them to strengthen their balance sheets.

Click here to read this piece in John Redwood’s Diary.


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