Is Carney on the brink of a shock exit?
As Bank rethinks GDP prospects, Governor’s decision...
THE Bank of England is facing a turbulent week as rumours swirl that Governor Mark Carney is poised to quit, just as the Bank concedes its doom-laden predictions for the UK economy were wrong.
Canadian banker Carney has said he will announce by the end of the year whether he will leave in 2018 or extend his tenure for a further three. But reports this weekend suggested he could make clear he will be leaving this week.
Carney has been under attack from Brexiteers for his forecast of economic damage from the vote and that credibility will take a fresh blow on Thursday as the Bank is set admit that its prediction of economic slowdown were too gloomy.
In August the Bank predicted growth of just 0.1 per cent growth in the third quarter of 2016, but official figures have now shown the economy grew by 0.5 per cent.
Last week Carney told a House of Lords Committee that, whatever his decision, it would be a personal choice and should not be taken as a reflection of Government policy.
In response to the reports, a Bank of England spokeswoman said: ‘Nothing has changed. The Governor has said he will make his decision public by the end of the year.’
The GDP growth announced at 0.5per cent last week would have been 0.4 per cent were it not for a boost from the film and TV production industry.
Members of the Bank’s Monetary Policy Committee have been preparing the ground for a stronger reading for the UK economy in recent weeks. In the minutes of September’s meeting it was revealed that the Bank thought growth would be 0.3 per cent.
Committee member Ben Broadbent said earlier this month: ‘The economy has performed better than surveys suggested immediately after the referendum. The central projection in the August Inflation Report didn’t involve a recession – simply a slowing in the economy’s rate of growth. But that slowing looks so far to have been more moderate than we feared.’
The Office for National Statistics, which last week released its preliminary estimate of 0.5 per cent growth for the third quarter, said that activity in the services sector had offset weakness in construction and manufacturing following the referendum Bank of England’s prediction proved too gloomy vote. Film and television production has been a major contributor, as cinemas paid studios for the right to screen July’s big releases including The BFG, Ghostbusters, Star Trek Beyond and Jason Bourne.
But some argue that the marked fall in construction and industrial production may yet herald a wider slowdown in the months to come.
Even so the official headline figure for gross domestic product was a far cry from the dire predictions made by many economists after the June 23 vote, allowing the Chancellor to give a more upbeat assessment in his Autumn Statement on November 23. ‘The Office for Budget Responsibility will no doubt be more optimistic than the Treasury was before the vote,’ said Martin Beck, senior economic adviser to the EY Item Club, which uses the Treasury’s own figures to predict economic outcomes.
While the Treasury’s internal economists had warned that a vote to leave the EU would lead to a shallow recession in the UK – predicting economic contraction of 0.1 per cent every quarter for a year following the vote in its ‘shock’ scenario – it is the independent Office for Budget Responsibility that produces the forecasts used in determining public finances. Its March forecast predicted growth of 0.5 per cent in the third quarter and the same for the final three months of this year.
The advisory body has made no new forecasts since the referendum vote, but did say earlier this month that personal tax receipts were coming in far weaker than expected.
Patrick Minford, professor of applied economics at Cardiff Business School and a proponent of Brexit, told The Mail on Sunday that the Treasury needed to understand that Brexit would boost growth through a ‘supply-side revolution’.
He had predicted growth of 0.6 per cent for the third quarter, powered
by strong consumer spending. He said: ‘It may still be revised up to 0.6 per cent. The Treasury’s models were completely wrong. We expect faster growth in 2017.’
The group Economists for Brexit is predicting overall growth of 2.3 per cent in 2016 and 2.7 per cent in 2017. The Bank of England is predicting 0.8 per cent growth in 2017, while the Treasury’s shock scenario following a leave vote anticipated just 0.2 per cent growth next year.
Others still expect weakness following the referendum and even suggest that the Office for National Statistics’ third-quarter figure will be revised downwards.
Oliver Jones, an economist at London-based research agency Fathom Consulting, said: ‘The response of the consumer to the Brexit vote has been smaller, to date, than we at first imagined. Nevertheless, Brexit still means Brexit, and a slowdown in UK growth over the next few quarters, led by a fall in investment, appears inevitable.’
Samuel Tombs, chief UK economist at consultancy Pantheon Economics, thought the figure would be revised down, saying: ‘The preliminary estimate relies on less than half of the data content that will be available for the final estimate, and revisions usually move the official data closer to the surveys, which have pointed to negligible growth.’