THE Bank of England’s new governor, Mark Carney, currently head of the Canadian central bank, has got his retaliation in early, even though he does not take up his post until July.
On Thursday he told Reuters that he saw a lot of merit in the controversial policy of the US Federal Reserve to keep interest rates at near-zero as long as unemployment remains above 6.5 per cent.
In conventional wisdom, central bankers are supposed to be Delphic about rate moves in order to stop the markets taking off-setting action, and to give themselves room for manoeuvre. The Carney view is not universally popular in the Bank of England’s rate-setting monetary policy committee (MPC).
In particular, it is opposed by Martin Weale, who is a deficit hawk despite spending 15 years at the normally liberal National Institute for Economic and Social Research.
Weale is wary about the Bank pre-announcing “intermediate targets” beyond the standard inflation benchmark of 2 per cent. He is also worried the MPC might find itself having to change its mind in public, which would be embarrassing and undermine its credibility. Given the Bank’s notorious inability to predict the course of inflation, it’s touching that Weale should be so concerned with getting public egg on his face.
I look forward to reading the July minutes of the MPC.
Making a case for coal in post-Thatcher era
BARONESS Thatcher will forever be associated with the death of the British coal industry. Funnily enough, coal has never been so popular as a fuel.
Since Mrs T left Number 10, global coal production is up by 40 per cent. More mining jobs were lost in Scotland yesterday but global production is now more than four billion tonnes a year and will hit seven billion by 2030, half the increase being mined in China.
Funnier still, coal is still responsible for generating nearly 40 per cent of electricity in the UK, compared to 28 per cent from more expensive gas, 18 per cent from obsolete nuclear plants, and a miserly 11 per cent from renewables.
Conclusion: don’t bet on future UK and EU energy policy without taking coal into account. In fact, coal is (re)emerging as the dominant price setting fuel in European power markets.
In the UK we complain about the price of natural gas and the “excess” profits made by the gas utilities. We’re looking in the wrong direction. Gas is expensive because Japan hoovered up supplies after its nuclear meltdown, while the Gulf States waste it to power air conditioning.
At the same time, heavily subsidised renewables are eating into the share of the generation market held by gas. Bingo: profit margins for UK operators of gas-fired electricity generating stations are being squeezed – hence their desperation to put up prices to consumers. Centrica expects to make a loss of £100 million on its UK gas-fired plants this year. The company is mothballing its King’s Lynn plant while SSE is expected to keep its big Keadby and Medway plants “in maintenance” for at least a year.
Meanwhile, the endless flow of imported cheap coal is quietly starting to dominate the market again, especially with a low dollar. Assuming the UK and Europe refuse to use fracking to exploit deep gas deposits, and that market forces make British politicians abandon their love affair with ludicrously expensive nuclear plant, then coal could become king again.