Independence at Bank of England has not gone too far, says Carney

MARK CARNEY, the Governor of the Bank of England, has defended the institution’s independence following criticism from the former shadow chancellor Ed Balls, who suggested the Treasury should take a bigger role in setting monetary policy.

“Independence has not gone too far,” said Mr Carney. “The system is incredibly well designed.”

He was questioned in light of the former Labour shadow chancellor’s remarks that the Treasury had “washed its hands” of responsibility for financial stability and “should be setting a clear objective for financial stability and policy”. Mr Balls was speaking at a two-day conference to mark the 20th anniversary of the central bank’s independence. Discussing the Bank’s role in an interview on the BBC’S Today programme, Mr Carney said the tools of an independent central bank were “crucial to society”.

“We have a responsibility [to tax payers] to identify risks in the economy,” he said. He added that imminent interest rate rises are likely and sought to reassure borrowers that they would be gradual. “We are talking about just easing a bit off the accelerator to keep with the speed limit of the economy.”

However the latest figures from the Office for National Statistics indicate the economy may be slowing a touch, which economists think makes a rate rise in November less likely. The index of services showed the dominant sector’s output shrank by 0.2pc from June to July, indicating a poor start to the third quarter of the year.

And revisions to past data show GDP grew by 1.5pc in the year to the second quarter, not the 1.7pc previously thought. That makes the annual growth rate the slowest in four years, another reason it may be difficult to raise rates now.

Alan Clarke, an economist at Scotiabank, estimates that services output will grow by 0.2pc to 0.3pc in the third quarter. “That is much worse than seemed likely not so long ago,” he said. “Previously the Bank of England was also suggesting upside risks to its 0.3pc quarter-on-quarter. Now, 0.3pc would be a bit of a relief.

“Do they still hike? The Bank seems pretty determined. But the data will ultimately decide. I am sticking to my call for a hike in November, but I’m much more nervous now than I was prior to this data release.”

Mr Carney also reiterated fears about levels of consumer credit. “[What] we’re worried about is a pocket of risk, a risk in consumer debt – credit card debt and personal debt – that has started to grow pretty rapidly.”

The Governor also set out the ways in which the Bank of England is preparing for the UK’S departure from the EU.

“We need to do everything we can to make it work. That’s making sure the financial system is ready and working with our financial partners in Europe.”