THE head of the CBI yesterday supported the new Bank of England governor Mark Carney’s apparent desire to have more flexibility over monetary policy, including a greater focus on fuelling economic growth.
But John Cridland, director general of the employers’ lobby group, said his organisation would not be calling for nominal GDP growth targets with which Carney, the current governor of the Bank of Canada, has been linked.
Cridland said: “We are very excited about the appointment of Mark Carney. He has signalled the merits of flexibility [on monetary policy]. I don’t think he’s been appointed as Bank governor to leave things as they are.”
The CBI boss also praised the performance of the BoE’s monetary policy committee (MPC) in the past four years for “not slavishly pursuing the inflation target” at the expense of the need for stimulus measures for growth. He said he believed Carney would continue in this vein.
“I don’t want to let the inflation genie out of the bottle and I don’t think the two [control of inflation and stimulus for growth] are inconsistent,” Cridland said.
He added that neither he nor the CBI were calling for a nominal GDP target, saying the BoE could give help to Britain’s stuttering economy without such a measure.
It came as the organisation cut its forecast for GDP growth in 2013 to 1 per cent from a previous 1.4 per cent, citing the 0.3 per cent contraction in the final three months of 2012.
Cridland said the CBI felt the pace of a “slow, unspectacular” recovery of the economy from this year would lead to 2 per cent growth in 2014 – unchanged from its previous forecast.
He said there were grounds for cautious optimism, but that the risks from the eurozone – accounting for 50 per cent of British exports – remained.
On the plus side, Cridland added, were probable continued momentum in the Chinese economy, a stable American economy and a strengthening German performance as the global picture improved.
The CBI forecasts that inflation will edge higher until mid-2013, while unemployment levels “are unlikely to change significantly over the forecast period, at 2.5 and 2.42 million in 2013 and 2014 respectively”.
However, Cridland said unemployment was still lower than one would expect at this stage of a recovery, partly citing workers “trading earnings growth for jobs security”.
He backed the government’s deficit-reduction policy again. “We are clearly paying a price for austerity because it detracts from growth but it’s an essential part of getting the British economy back on a path for growth,” Cridland said.
Ahead of the Budget, he said the CBI was also pressing for many more minor infrastructure works, “such as filling in potholes”, than major projects.