Newspaper article The Evening Standard (London, England)

Carney Will Need Poker Face in This High-Stakes Central Bank Card Game; ECONOMIC ANALYSIS

Newspaper article The Evening Standard (London, England)

Carney Will Need Poker Face in This High-Stakes Central Bank Card Game; ECONOMIC ANALYSIS

Article excerpt

Byline: Russell Lynch

THERE comes a point in any poker game when all the money has to go to the middle of the table. It hasn't been the best of evenings, the decent hands have dried up, and your chip stack is being eaten away by the rising cost of playing. Often players have to take a stand, even with any two cards, while they're still strong enough to persuade their opponents to fold: they just take a deep breath, and push.

Poker is a game of betting and bluff, giving it a few things in common with central banking. After the Brexit vote, the Bank of England certainly isn't playing a great hand. Its latest growth forecasts tomorrow are likely to show virtual stagnation, if not outright contraction, in the current quarter, and sterling's dive will raise its inflation predictions significantly. Meanwhile, parts of its "chip pile", for example the ability to cut interest rates, are running low.

Luckily, Threadneedle Street's ratesetters aren't yet at the stage of our desperate cards player. They have plenty of chips in reserve. Despite the difficult times facing the UK economy over the next few months, Governor Mark Carney's performance and tone will be just as important as what the Bank actually does. He has to strike the balance between recognising the gravity of the situation, as the Monetary Policy Committee should do with its first interest rate cut since 2009, without going over the top and sending financial markets haywire.

In poker terms, the Bank should attempt to project the "table image" of the front-runner who's just lost a big pot on the turn of an unfortunate card, but remains in control of the situation and is very much in the game.

It's about the sizing of the bet to show that you're not panicking. A sudden conversion to negative interest rates, for example, might encourage more spending in economic theory but carries the greater risk of having the reverse effect if people become spooked and decide to burrow down in the bunker more deeply. …

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