LORD King, the former Governor of the Bank of England, once said: “To retain credibility it is important that central banks don’t claim to know more than in fact they do.
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The wisdom of that statement seems to have been lost on his successor, the embattled Canadian Mark Carney.
During his three years at the helm in Threadneedle Street Carney has seen his authority continuously eroded by mistaken economic forecasts and misguided political interventions. It is a process that culminated this summer in his aggressive attacks on the case for Brexit during the Referendum campaign.
Now, in the aftermath of our heroic vote for freedom, he remains trapped in his cocoon of gloom. Having wilfully tried to foster a climate of anxiety over the British economy, he heightened the febrile mood last week with a scheme that seems likely to undermine consumer confidence and damage stability.
Among his panic measures were a cut in interest rates from 0.5 per cent to just 0.25 per cent, the lowest they have ever been since the Bank was established in 1694. Carney also announced a vast £170billion stimulus package, made up of a £70billion bond purchase programme and another £100billion to encourage bank lending.
Yet all this frenzied, expensive activity is surely the wrong recipe for Britain. Lack of cheap money is certainly not the most serious problem facing our economy. Indeed, interest rates have been at just 0.5 per cent for the last seven years, while mortgages have never been more affordable.
The real difficulties are job insecurity, low pay and overpriced housing, none of which will be resolved by a fall in interest rates.
The biggest gainers will be the rich, who will see another surge in the value of their assets. But the losers will be those who are reliant on their income from savings. They have already taken a hammering since the 2008 crash. Now they will see their cash returns dwindle even further.
Just as disturbingly, this further monetary loosening could send debts spiralling out of control – precisely what happened in the last meltdown.
Carney’s action seems wildly premature and based on precious little evidence. Contrary to the atmosphere of doom engendered by his new strategy, Britain appears to be in robust economic health. Even the Bank admits that, after growing by 0.6 per cent in the second quarter of the year, the economy is still due to expand by two per cent this year.
Yet Carney has still clung to his soundtrack of misery, even talking wildly of economic “Post Traumatic Stress Disorder” because of Brexit. It is almost as if he wants to turn his prediction of calamity into a self-fulfilling prophecy.
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His behaviour in the Referendum campaign was extraordinary, totally unsuited to a senior public official who has a duty to be politically impartial. In place of independence, there was noisy pro-Remain partisanship. If the former Chancellor George Osborne was the commander-in-chief of Project Fear, Carney was his eager lieutenant.
For months he bombarded the public with explosive propaganda about the dire consequences of Brexit, which he claimed was “the greatest risk to domestic financial stability”.
So biased was his approach that he came under fire from a host of senior Eurosceptics, who condemned the Bank for peddling “scare stories”. Tory MP Jacob Rees-Mogg argued that “he has so damaged the Bank’s reputation” that “he should be fired”.
Carney is now a badly diminished figure. When he took up the post as Bank of England Governor in July 2013 his arrival here was seen as a major coup for the Coalition Government. A former Governor of the Bank of Canada, he was seen as massively experienced and talented.
Supporters pointed to his record of steering Canada away from the financial crisis.
But his critics warned that he was overrated, that his role in avoiding the crash had been exaggerated, that he subscribed to the narrow thinking of the globalised elite and that his ambition exceeded his ability.
Those flaws have become all too apparent during his reign. He has proved a worse forecaster than a dodgy racing tipster. One of his first acts as Governor in 2013 was to warn that if unemployment fell below seven per cent, the Bank would have to consider putting up interest rates.
Yet this so-called “forward guidance” turned out to be a complete irrelevance, as the jobless rate tumbled below five per cent without any response from the Bank.
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In the same vein, he has regularly been forced to revise his estimates for GDP and wage growth. No less than five times he has had to write to the Chancellor explaining why he has missed his inflation target.
“With every missed target and revision, credibility in both the Governor and the Bank is dented,” wrote the tough-minded Labour MP John Mann.
Nor has Carney’s political posturing been confined to Brexit. A master of the current politically correct orthodoxy, he has indulged in jargon-filled speeches about diversity, inequality and climate change. But such platitudes are not what our economy needs.
David Cameron recognised that he was too compromised by the Referendum to remain in his post. Carney should do the same.
