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Comment: Carney faces choice after King’s history lesson

Terry Murden. Picture: TSPL

Terry Murden. Picture: TSPL

  • by TERRY MURDEN
 

THERE were no warm words of welcome last night for his successor, but Sir Mervyn King, the outgoing governor of the Bank of England, offered some veiled advice to Mark Carney over his controversial remarks on monetary policy.

The Canadian, who takes over the role in the summer, caused a stir when he suggested shortly after his appointment that Britain’s inflation target should be scrapped.

King warned the new man in Threadneedle Street that to drop the objective of low inflation would mean forgetting the lessons of Britain’s post-war history.

In a short overview for the incomer, King reminded Carney of the painful experience of the 1960s and 1970s when Britain’s policymakers chased an “unrealistic growth rate”.

It sets the scene for Carney’s first public appearance when he faces the influential Treasury select committee on 7 February. MPs will expect him to explain his reasons for wanting to abandon the inflation target that has been the backbone of monetary policy for 21 years.

King, of course, had to acknowledge that the Bank’s monetary policy committee (MPC) has rarely hit the 
2 per cent inflation target and not at all since December 2009. Furthermore, the quantitative easing programme favoured by the MPC works counter to the inflation-busting policy by actually forcing inflation up. He knows that it will rise above 3 per cent this year.

In his defence, he says other countries have adopted the 2 per cent target and he excused the MPC’s waywardness as the lesser of two evils – the side-effects of sticking rigidly to the inflation target were higher unemployment and lower living standards.

It is a fair point, but he admitted that the MPC has been given no guidance on how to strike a balance between controlling inflation and stimulating growth in the short run.

His successor – who was accused of being “too political” in his arguments over changes to policy – will be quizzed over how he might resolve that particular conundrum.

His problem could be made worse before he takes office as it looks like Britain will be heading back into recession and may have lost its triple-A credit rating.

Rose blooms as Ocado shows strong growth

The infamous battle for control of Marks & Spencer in 2004 helped make former chief executive Sir Stuart Rose a household name.

Since his departure in early 2011 as executive chairman he has kept a lower profile. Now he is back as chairman of one of the more successful online traders, Ocado, and investors believe he could not have found a better berth.

According to Tom Ewing, portfolio manager of the Fidelity UK Growth fund, Rose’s appointment should boost the retail experience at the top of Ocado while reminding others in the sector that people increasingly want to shop for their food online.

Ocado is already making massive progress, supported by an equity raising that removed concerns over funding. Sales are growing strongly and ahead of the sector. Ewing goes so far as to predict the demise of out-of-town supermarkets if online grocery sales continue at their current pace.

Fundamentally, he credits the firm with “conjuring up, out of nothing, a £700 million brand in one of the most competitive sectors in the UK, simply by giving consumers what they want”.

If only Rose’s troubled successor at M&S, Marc Bolland, could bottle and sell the same formula.

 

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