Comment: The trouble with predicting the future

Bank of England governor Mark Carney. Picture: Getty
Bank of England governor Mark Carney. Picture: Getty
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Mystic Mark has come good, enjoy the moment in case it doesn’t last, writes Martin Flanagan

GOVERNOR Mark Carney’s “forward guidance” regime at the Bank of England is so last year. The future seems to be arriving much faster than anyone predicted. Economic recovery, clearly; higher interest rates, possibly.

Carney’s suggestion last summer that historically low interest rates would not go up until unemployment fell to 7 per cent (with caveats), and that it was unlikely to happen before 2016, already looks sepia-tinged.

The numbers out of work fell 99,000 to 2.39 million in the three months to October. The jobless rate has already dropped to 7.4 per cent compared with 7.8 per cent when the governor first trialled his Mystic Mark act in the UK.

The economy grew about 2 per cent in 2013, double what some predicted last January. A rough consensus seems to be forming around even healthier growth of nearly 3 per cent in 2014.

A rate rise, particularly in the latter part of this year, is surely an even-money possibility as the economic recovery hopefully continues to broaden and deepen. If not then, a 2015 rise looks a racing cert.

Currently, the recovery embraces financial services to manufacturing, IT to hotels and transport, restaurants to construction. Even utilities’ profits … let’s not spoil the New Year mood.

One begins to wonder whether Carney, imported on wings of high achievement from the Bank of Canada, meets the Napoleonic desire of having generals who are “lucky”.

Britain is far from out of the woods. The public finances would not get a mortgage if they were a first-time buyer. We will be deep in hock for a few years yet, whatever the outcome of the UK general election in 2015.

But the BoE itself must feel cheerier than it has since the near-supernova of the banking sector in 2008.

After regularly failing to meet its inflation target in recent years, the central bank’s prognostications for the consumer price index are now pretty benign.

If interest rates do go up to more historically normal levels it is unlikely to be rampant inflation that triggers it.

This should simplify the BoE’s monetary policy committee (MPC) and financial policy committee (FPC) fulfilling their main remits of monitoring monetary stability and systemic risk, and promoting economic growth.

It is clearly not a case of all being for the best in the best of all possible worlds. The Bank knows Britain’s main export market of the eurozone remains problematic. The unwitting creation of a UK housing bubble (see below) is a risk.

Scotland might vote for independence, with both the benefits and uncertainties that might entail. There are geopolitical wild cards from Iran and North Korea to the South China Sea.

But 2014 still looks to be the first year in the past seven that even a conservative institution like the BoE has firm grounds for gathering

Have we learned anything yet?

MORTGAGE approvals touched their highest since January 2008, official figures showed last Friday. But net business lending fell sharply, the BoE said.

It will sharpen concerns that the creation of a new housing bubble is in train, and that consumer debt rather than business investment and exports is driving the recovery. The Funding for Lending scheme has already choked off funds for mortgage lending to meet the threat.

Perhaps it is time the government’s Help to Buy mortgage scheme is revisited as well. A stitch in time …