When Mark Carney was announced as the next Governor of the Bank of England (BoE) I read that we would be hearing a lot more about him between now and June 1 2013 when he takes up his new appointment
Well that certainly seems to be the case. From what I have been reading about his speech last week, the first since his appointment was make public, the content has sparked a great deal of debate. To outsiders, it looks somewhat as if Mr Carney may take the English economy firmly by the shoulders and give it a really good shake!
The debate has been fuelled by Mr Carney’s suggestion that the BoE should switch its focus from inflation to growth targets in an effort to get the economy moving again.
There is some doubt around how successful the strategy to focus on inflation has been as for most of the past three years inflation has been above target and with the Chancellor saying that he doesn’t have much room for extra budgetary spend to help the economy, a change of direction from the BoE would seem a good move.
It seems that the result of the BoE focusing firmly on inflation which, before the crisis seemed to be working quite well, was that it ignored all manner of things that were going on in the banking system and which subsequently caused problems. It also appears that another quite important thing which has been missed is that the economy is not growing whatever happens to inflation.
One idea for a growth target is the targeting of the cash value of GDP i.e. the cash value of all of the transactions in the economy, and to look at how this is growing. Some believe this would give a much wider view of what is happening in the economy.
It is doubtful that this sort of sea change will happen quickly, but Governor-in-waiting Mr Carney is putting a stake in the ground making it clear that he is not afraid to take on the old guard of the BoE to change the way things are done.
But there are a couple of questions that it would be good to know the answers to. The first, is how much responsibility the BoE can take, or should take for driving economic growth and secondly, how much time will the new Governor actually have to devote to pushing the Bank in this new direction?
Let’s not forget that Mark Carney will be the first Governor of the BoE who will also have the added responsibility for overseeing the regulation of individual banks in order to keep the financial system safe.
Come 1 June 2013 Mr Carney will, more than ever before, need access to the right people who can deliver the right advice at the right time to ensure that he is able to successfully guide the BoE through his five year term of office.
