Educated at Harvard and Oxford University, having experienced a successful period of just over five years as governor at the bank of Canada, Mark Carney soon stepped into the role of governor at the Bank of England ready to take on the challenges facing UK.
As governor of the Canadian central bank, Carney pledged to keep interest rates low for 12 months, helping to calm fears in financial markets that borrowing costs were about to rise.
One of the many challenges facing Mark Carney in UK, is the persistently weak real income growth – with high inflation more than outweighing paltry pay deals, which was highlighted as a risk to the recovery by MPC members: “Real income growth had remained weak … and it was unlikely that consumption growth could continue at its current rate without some rise in real incomes.”
Furthermore, interest rates have been at a historic low of 0.5pc for more than four years, the Bank of England has bought a third of the national debt to the tune of £375bn, banks are being plied with cheap credit, and taxpayers are underwriting risky mortgages.
David Dodge, who identified Mr. Carney as his successor during a seven-year tenure as Canada’s chief central banker to 2008, told The Independent: “It’s a mega-challenge, to absorb the regulatory side into the Bank of England. You’ve got to figure out how the Bank of England of 2013 operates against how it operated under Sir Mervyn King and even before that.”
In addition, Britain’s banks were operating at leverage ratios of as high as 80 times. Canada’s regulators had set a limit of 21 times lower even than the UK post-crisis standard of 33 times. Canadian households had manageable levels of debt in 2007, at about 125pc of disposable income, compared with 155pc in the UK – public borrowing was under control.
While UK already had a 2.9pc deficit, Canada was running a 1.5pc budget surplus in 2007, with natural resources in oil, gas, gold, and copper as an economic incentive. Another fraught area for Carney is Britain’s financial system.
The Bank of England has been handed back the responsibility for supervising the banks, lost in 1997, and the newly-fledged Prudential Regulation Authority will be under his remit. The changes to the Bank’s remit are relevant to one of Carney’s biggest challenges: fixing the culture of an entity that many feel has become too hierarchical, and out of touch. Despite the Bank having changed radically since the downturn hit, Carney will still be expected to bring the institution into the 21st century.
In a positive light, governor Mark Carney has managed to win the support of Bank of England policymakers who have swung behind him and voted unanimously against extending quantitative easing at the monetary policy committee meeting, amid signs that economic recovery is becoming “more firmly established”.
David Miles and Paul Fisher, the two MPC members who had repeatedly backed Sir Mervyn King’s calls for an extension of the deflation-busting policy, have decided instead to switch their votes and support Carney’s plan of leaving the size of the QE programme unchanged at £375bn.
As a follow up to the Bank of England’s July MPC meeting, it was suggested that with the recovery still fragile, rather than halting stimulus, it was examining the idea of using a different approach to try to kick-start growth.
A public survey, published in the Bank of England quarterly bulletin, has shown that while public confidence in the Old Lady of Threadneedle Street has grown, the sharp drop that occurred with the onset of the crisis has yet to be reversed. It has been stated that fewer than half of households – 35% to 40% – said, in this survey, were “fairly or very satisfied” with the way the Bank was doing its job, and 20% to 30% were “fairly or very dissatisfied”.
The new governor will be hoping to improve those ratings along with the future robustness of the UK financial system in particular and the performance of the wider British economy in general.
Roxana Andrusca is Vice Chair for Hampshire and Isle of Wight Young Labour and UK Global Poverty Ambassador