THE Bank of England governor withstood political pressure yesterday to publicly throw his weight behind Chancellor George Osborne’s recent claim that Britain’s economic recovery had “turned the corner”.
Mark Carney told MPs on the Treasury select committee that there were signs the economy was on the mend and monetary stimulus was working, but that “we shouldn’t be satisfied” with the current level of recovery.
The former governor of the Canadian central bank, and an appointee of the Chancellor to the Bank, repeatedly refused to be drawn on whether the economy had turned the corner after the prolonged slowdown since 2008.
Carney said the economy, with unemployment falling to 7.8 to 7.7 per cent between May and July according to figures this week, “has stopped shrinking. It was stagnant, it has now picked up”.
But he added: “I hesitate to get pulled into a political debate for obvious reasons. We have a recovery and in recent weeks we have seen data consistent with some strengthening and widening of the recovery.
“But it’s early days in that recovery. It’s a long way back to the potential of this economy.”
Carney, in his recent much-heralded forward guidance to businesses and households, has said the Bank will not raise interest rates from historic lows until unemployment falls to 7 per cent, which the bank thinks will take until 2016.
However, he has identified “knockouts”, such as a likelihood of medium-term inflation of 2.5 per cent, above the targeted 2 per cent, when the BoE might consider hiking rates.
MPs questioned whether his guidance was confusing rather than enlightening the public on future interest rates. Treasury committee chairman Andrew Tyrie and Carney fenced on whether the governor’s announced monetary policy was “loose” according to the MP or “stimulative”, the term preferred by the governor.
Tyrie commented that it was “going to be a bit hard down the Dog and Duck” to decipher what the policy was.
But Carney countered that he believed the guidance on rates and quantitative easing (QE) – the injection of money into the economy through the purchase of bonds – had given households and businesses greater “certainty and clarity”.
He also said when the time came for the Bank’s monetary policy committee to reduce the stimulus in the economy, it would raise interest rates before it started selling any of the bonds it has bought as part of its QE programme.
The governor, who was appearing before MPs to discuss the Bank’s August 2013 inflation report, also repeated that he deeply sympathised with prudent savers who were getting niggardly returns due to low interest rates.
But Carney added that it was the Bank’s job to make sure the recovery was not a “false dawn”.
He added: “What we are planning to avoid is this [nest eggs worn away by inflation and low rates] stretching into decades as opposed to two to three more years.”
Carney said the Bank would remain vigilant to prevent any renewed housing bubble, but he did not think that was currently a problem despite rising prices and a freer mortgage policy from lenders.