Newspaper article The Evening Standard (London, England)

Carney's Still in Canada but Bank Is Already Dancing to His Tunes

Newspaper article The Evening Standard (London, England)

Carney's Still in Canada but Bank Is Already Dancing to His Tunes

Article excerpt

Byline: Russell Lynch economic analysis

IT might still be more than four months before incoming governor Mark Carney takes over at Threadneedle Street but he is already pulling the strings at the Bank of England.

Minutes of the latest Bank of England monetary policy meeting, held just when the Canadian was making a confident first appearance before MPs up the road in Westminster, shows a radical change in thinking on the nine-strong committee. A trio of rate-setters -- including Governor Sir Mervyn King himself -- are pushing for more money-printing, despite the fact that inflation will be well above the MPC's 2% target for the next two years at least.

You don't have to be a Kremlinologist to detect the change of tone in just one month: it's a case of sledgehammers rather than nuances. In January's minutes readers would be hard pushed to find a hint of more quantitative easing. Back then a burgeoning global economy "strengthened the belief" of some MPC members that "no further asset purchases were required". Not only that, but the "prospect of continued abovetarget inflation could result in an erosion of credibility in the monetary policy framework".

A month later, the rate-setters are opening the playbook on alternative measures -- cutting rates, buying up other assets apart from government gilts, and charging banks on their reserves held at the central bank. All the artillery was "reviewed" and although "drawbacks" remain, it's amazing how quickly the MPC has decided to shuffle through the locker. As for the inflation target -- ahem -- it was "appropriate to look through the temporary, albeit protracted, period of above-target inflation". King has often said the pound is still too strong for an effective rebalancing of the economy and news of his vote duly did the damage to sterling.

The shift could hardly have been prompted by the economy's 0.3% reverse shunt in the final quarter of last year, as the MPC -- sceptical over official growth estimates at the best of times -- was always braced for a negative number. …

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