Carney’s political battle
THE love bombing of Mark Carney by the Prime Minister and Chancellor means that the governor stays longer at the Bank. But only just. His decision to hang around for an extra 12 months beyond his fiveyear term, which ends in June 2018, looks a little grudging.
If anything, the collection of Brexiteers who deemed Carney unfit for office – William Hague, Michael gove, Jacob Rees-Mogg and Daniel Hannan – strengthened the governor’s hand in deciding his own leaving date.
Several arguments were deployed against Carney: that he is too political, that he destroyed the lives of savers and that his forecasting has been atrocious.
The idea that central bankers can ever divorce themselves from politics is preposterous.
one of the most revered occupants of the office, Montagu Norman, was a rabid advocate of the gold standard – a policy which had to be hurriedly abandoned in 1931 amid global meltdown. In modern times, Mrs Thatcher’s personal choice for governor, Robin Leigh-Pemberton, fell foul of her government when he rescued Johnson Matthey Bankers without prior consultation with the Treasury.
Eddie george campaigned endlessly against the single currency long before gordon Brown used the Treasury’s five tests to prove the project was worthless. Mervyn King, amid moves by Downing Street to sack him during the financial crisis, took to the media to defend the Bank’s judgment of its impact.
Before and after independence, governors have felt it necessary to intervene politically. Indeed, when Carney rubbished currency unions during the Scottish referendum campaign, Downing Street was delighted.
There is no doubt that low interest rates and quantitative easing punished savers and pensioners. The alternative, as we can see from euroland, would have been more ghastly.
The nations which most aggressively embraced QE post the crisis – the US and Britain – emerged strongest in terms of growth and reduced unemployment. Without QE and low interest rates, Britain might have faced Italian-style stagnation, French (or even worse) levels of unemployment and banks not fit to lend.
Critics are right on the Bank’s forecasting. That has proved as unreliable as the horse racing tips offered by the BBC.
What has particularly exasperated the frenetic Brexiteers was Carney’s suggestion that the UK could be heading for a ‘technical recession’ if it voted to Leave.
We may never know, but it is possible that flushing the financial system with money when the country was frozen with uncertainty may have steadied the ship in time.
Anyone who becomes sniffy about the Bank’s forecasting errors should remember the Queen’s exasperated comments when visiting the City after the credit crunch: ‘Why didn’t anyone see it coming?’
Forecasting is a very inexact science.
Sorrell speaks
JoLLY good to see that the FTSE 100’s bestpaid chief executive, Sir Martin Sorrell, hasn’t lost his Midas touch.
In spite of what he described as ‘false gains’ on Brexit, income at his WPP marketing colossus was up sharply in the third quarter.
The stock market gave the numbers the thumbs up, sending its shares 4.1pc higher and pushing the company’s market value up to £22.5bn.
Chairman Roberto Quarta says that one of the reasons that Sorrell is worth his money is because of his skills as a commentator on global affairs. Sorrell’s latest pronouncement is to suggest ‘if the value of a currency falls, it’s rather like the country’s stock price is falling’. Doubtless very profound. But if UK plc has become such a basket case then why is its growth firmer than most g7 nations and why are foreigners rushing to London to buy giltedged stocks?
Latest data from the Bank of England shows overseas holdings of UK government bonds climbed by a hefty £13.3bn in September after a modest rise of £1.8bn in August.
The ability of governments to sell debts to overseas buyers is generally regarded as a bellwether of a nation’s economic health, which is why bond rates in the eurozone are so closely monitored for the weakest links.
It is all very well being a global guru but, as the IMF, Bank of England, Treasury et al have found, it is very easy to end up with egg on face.
Audit shame
BY ITS own snail-like standards, the Financial Reporting Council moved rapidly to punish the Co-op Bank’s former chief financial officer and chief executive Barry Tootell for failing to exercise the diligence and skill which might have prevented the lender from imploding.
Even so, it could be argued that the fine of £20,000 and ban from working as an accountant for six years will hardly have other recalcitrants shivering in their boots.
We must trust that when it comes to delivering a verdict on auditor KPMg and, for that matter PwC (auditor of the Britannia, which was the core of the Co-op crisis), the FRC will not allow itself to be intimidated and produce the robust response required to restore faith in bank audits.