Magazine article The Spectator

May vs Carney

Magazine article The Spectator

May vs Carney

Article excerpt

How bad is Mark Carney's relationship with Theresa May?

The exchange of letters this week between Mark Carney and Philip Hammond made it very clear who the supplicant was. The Governor of the Bank of England informed the Chancellor of the Exchequer that he was prepared to extend his term by one year. Carney pointed out that while the personal circumstances that had made him want to limit his term to five years had not changed, this country's circumstances had. So he would be here a little longer.

Things had seemed very different a few weeks ago, when Theresa May bemoaned the consequences of the Bank's monetary policy in her party conference speech. 'A change has got to come,' she had warned. 'And we are going to deliver it.' The Prime Minister's willingness to criticise the effects of the Bank's monetary policy was seen by many as threatening its independence. Carney himself was unhappy about it, and made that clear. Former chancellors and backbench Brexiteers having a pop were unlikely to bother him, but if the Prime Minister was expressing doubts about the Bank's approach, that was serious. If Theresa May didn't have complete confidence in Carney, his position would be untenable.

Shortly after May's speech, in which she blamed low interest rates for high asset prices and worsening inequality, Carney told an old friend that he was considering heading back to Canada at the first decent opportunity, 2018. He wasn't inclined to extend his term as Governor, despite a request for him to do so. It wasn't just May's criticism of monetary policy that had irked him. Those who know him say he hadn't liked the whole 'citizen of the world, citizen of nowhere' tone of her speech -- perhaps unsurprisingly, given that he is a Harvard-educated Canadian serving as Governor of the Bank of England.

Carney's mood had not improved when his request for a meeting with the Prime Minister was initially answered with a date several weeks hence. In the old days, No. 10 had fitted in Mr Carney rather faster than that. His meeting with May in Downing Street on Monday was the first official, face-to-face conversation they have had since she so publicly aired her concerns about monetary policy -- although they had spoken on the telephone.

Hear James Forsyth and Sam Bowman discussing Theresa May's relationship with Mark Carney

Allies of Carney feared that he was a marked man due to his close relationship with the ancien régime , particularly with George Osborne. After all, Carney was very much Osborne's personal appointment as Governor. When the Bank of England job came up, Carney was still governor of the Bank of Canada and the interview process was rather cloak-and-dagger. He was met at the airport by one of Osborne's special advisers and taken for a meeting with the chancellor. Osborne relished appointing a 'rock-star central banker' who was the toast of the Davos circuit. Carney's arrival was a personal triumph for him -- which raised questions about how Carney could fit with May's less metropolitan, more provincial, government.

But Carney had a trump card. Not to extend his term would cause market mayhem and suggest a massive rupture between the government and the Bank. Just last week, Carney told a House of Lords select committee that his decision about whether to stay or go would be determined by what was best for his family. But as Philip Hammond privately acknowledged, if Carney departed it would have been interpreted as far more than a personal decision. The media and the markets would have seen it as a populist scalp. At a time when gilt yields are rising, the last thing the UK needs is more uncertainty.

Carney's departure would have been particularly embarrassing for No. 10, since May's conference speech was not intended as a threat to the Old Lady of Threadneedle Street's independence. May's team -- forged in the Home Office and lacking Treasury experience -- had not realised quite how explosive commenting on Bank of England policy would be. …

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