Article / 15 September 2016 at 14:54 GMT

Criticism of courageous Carney badly misplaced

Managing Partner / Spotlight Group
United Kingdom
  • Bank of England held Base Rates today at the record low of 0.25%
  • Governor Mark Carney has not sullied the banks independence
  • Rather he spoke on June 24, when other leading figures were missing
  • UK is fortunate to have the economy supported by such an assured governor

Critiicism of Mark Carney and the Bank of England is misplaced. Photo: iStock

By Stephen Pope

As was widely expected the Bank of England held the base rate steady at today’s monetary policy committee meeting. The market was not looking for any additional accommodative action after a sequence of data that has suggested the UK’s economy is holding ground following the initial shockwave post the vote on June 23 to leave the European Union.

The UK’s main equity index, the FTSE 100 recovered up to 90% of the post-Brexit losses by mid-August and sterling shed approximately 30% of the value it lost against dollar over the same period.
Source:, Spotlight Ideas

Of course, I fully agree that a mere two months is a rather short period of time in order to conduct a full evaluation of the medium- and long-term economic implications of structural change of the magnitude of Brexit. One has to accept that the implications and impact on the real UK economy will be gradual as the country will sooner as against later start the negotiations for its withdrawal from the EU.

It is an open question as to what level of access the UK will have to the single European market, especially if the government seek to limited the free mobility of labour. What will be the impact on the City of London? How quickly and to what extent can the UK forge new and independent trading relationships with the rest of the world? All these questions will be on the minds of politicians, business men and of course the BoE.

Heavy lifting

As the UK progresses along the post EU path so more than ever the economy will need the BoE to be prepared to use all conventional and unconventional policy tools at its disposal.

With that in mind, I think it was entirely correct for the BoE to have reduced the base rate to 0.25% in August. This is clearly a time of uncertainty and the BoE is right to bathe the economy in as much monetary accommodation as possible so as to minimise the impact of any endogenous and exogenous stress factors. On that note I am highly encouraged to read that the central bank also said that a majority of members would support a further rate cut in November if the outlook at that time is consistent with the August Inflation Report projections.

I do not concur that the BoE is out of ammunition. Of course the base rate is near zero, but there is no reason why it cannot fall further. The number line does not stop at zero! Similarly, there is no upper limit on the asset purchase programme. 

The BoE is targeting to buy £435 billion of sovereign bonds. In addition, it will start purchasing corporate bonds on September 27 aiming to acquire up to £10bn of bonds over the next 18 months. It doesn't have to pull the trigger on these purchases in one single operation, it can act like a traditional conservative bank by acquiring some ...pausing to test the waters...and then acquire more if required.

BoE governor finds himself somewhat unfairly engulfed in political controversy. Photo: iStock

Why criticise Carney?

Governor Carney finds himself confronting political controversy along with pointed questions over the effectiveness and legitimacy of his activist course.

The growing number of detractors argue that Carney tried to scare the electorate into voting for the “Remain” campaign as he issued exaggerated forecasts of economic damage, then acted precipitously to cut interest rates even as the economy proved resilient.

Imagine the anger and calls for his head had he not acted and the economy had tanked. It seems to be ignored that the bank can reverse its policy call just as easily as it is enforced. In fact, this is one reason why we should be pleased to have such an advocate of forward guidance at the helm. Carney will not blow up the economy with highly unexpected policy adjustments.

Also I have to urge his critics to recall that after the decision was made, the then prime minister, David Cameron announced that he would resign. The chancellor, George Osborne was essentially the invisible man and the leading Brexiteers’ were at odds of the succession in the Conservative Party.

As for the opposition, Labour was embarking on another internal war. Someone had to speak out and act...that is what Carney did. He addressed the nation as a whole, not just the financial community. For that, i.e. putting his head above the parapet he deserves praise.

I do not agree that the governor threw away the BoE’s mantle of independence by speaking out during the run up to the referendum. Next to the prime minister and the chancellor, I suggest that the BoE Governor was the third most important voice to be heard. He serves at the pleasure of HM Government and at the moment it pleases Mrs May and Mr Hammond to keep Carney in place.

Next steps

It may be wishful thinking to hope that the recovery in business sentiment will void the BoE of having to implement a fresh increase in its stimulus programme to avoid a potential recession in the coming quarters.

The FTSE 100 and consumer spending have held up better than was anticipated, however, the complete scale of the impact will not be known for at least several months.

It is generally expected that a slowdown in investment will materialise. We may well see multinational companies hold off on expanding operations in the UK until its future trading relationship with the EU is clear. That is only sensible business practice, however, I do think that some the strong language yesterday from the President of the European Commission was playing to warn those in other nations that might desire their own membership referendum.

Mr Juncker may have miscalculated as can it be right that he and the commission overlook any of the reasons why the UK voted to leave by immediately calling for even more European integration. What he showed was that unlike Carney who is blessed with a forward-looking perspective, too many politicians and appointed elites are only interested in preserving their own status quo. Given the fragility of the core countries of the EU, i.e. the Eurozone, one might think some humility would not go amiss.

Therefore, I will not throw vitriol at the Governor of the BoE, instead I will offer plaudits for a deft touch and sense of measured calm dispensed through the channels of sophisticated central banking.

Carney has the courage to speak soundly and the sense to act appropriately...we in the UK are fortunate indeed to have him in Threadneedle Street.


The EU could learn something from Carney's conduct. Photo: iStock

— Edited by Martin O'Rourke

Stephen Pope is managing partner at Spotlight Ideas
17 September
vanita vanita
Dear Steve,
Once again your advice on gbpjpy pair come as a very useful for me.
So,I always appreciate your views.
Take care .

20 September
AVLion AVLion
Dear Steve and Vanita, do you please share trading idea of GBPJPY strategy on 21sept. as 1st JPY policy in the morning could volatile market and afterwords US can hinder market there any perception...?
20 September
Stephen Pope Stephen Pope
AV...I am between meetings, however, I will look at GBPJPY this afternoon and submit information.

I will advise when the review has been posted.

20 September
AVLion AVLion
20 September
Stephen Pope Stephen Pope
Dear AVLion,

I have just submitted a Trade View on GBPJPY based on what I think BOJ will look to do, i.e. steepen the JGB curve.


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