MEMO TO MARK: Dear Mark Carney. Welcome to you first day at work in Threadneedle Street. For lunch, try Jamie Oliver’s Italian restaurant at No. 38 – the truffle tagliolini is highly recommended.
You’ll probably find a memo on your desk from Chancellor Osborne, outlining this week’s austerity package, but don’t pay it much heed. By 2015, Osborne may be sitting on the opposition benches while you are in post for at least three years after that.
Besides, as Paul Johnson of the Institute for Fiscal Studies (IFS) pointed out: “Publishing such a small amount of information with so little explanation is not an exercise in open government”. The IFS reckons that whoever is Chancellor in 2015 will need to raise an extra £6 billion in tax to make the books balance.
I need to warn you, Mark, that Osborne has manoeuvred you into a tight political corner. The media believe you are going to work miracles producing economic growth, as you did in Canada. I think you were lucky that Canadian banks – sticking to the conservative principles of their Scottish founders – avoided the 2008 debt crisis. So when you cut rates and boosted liquidity, the Canadian financial system and economy responded positively.
Conditions are different here, which is why you personally will get the blame if growth doesn’t pick up next year. However, the markets might respond to straight talk from yourself, and you are on record as favouring more “guidance” from the central bank. I notice, for instance, that you have started warning companies to prepare for a rise in interest rates.
My advice is to get your retaliation in early: explain what growth and unemployment conditions must apply for the Bank of England to continue quantitative easing.
When you got the job as governor, Mark, you hinted you would have a different target: boosting nominal GDP. In other words, economic growth would take equal priority with price stability – an approach I support.
Recently, you’ve appeared to backtrack on this new target. Unless you clarify your stance, the media will accuse you of (1) talking big to get the job, then seeking an easy life; (2) being a Canadian who doesn’t understand the UK; and (3) not knowing your posterior from your elbow.
Shaping up for a summer of hope
Yesterday produced a bucket load of positive date about the UK economy. Output in the service sector (roughly three quarters of the economy) grew 0.8 per cent in the three months through April while consumer confidence jumped to its highest level in two years.
House prices, always a key economic bellwether, are rising at their fastest clip since 2010. Better still, labour productivity seems to have stabilised after six consecutive quarters of decline. Now if Andy Murray can only win Wimbledon, we might be able to talk about the green shoots of recovery.