Mark Carney the Rock Star Refuses to Play an Encore
(Bloomberg Opinion) -- A U.K. rate cut was not to be — well not yet anyway.
After an entirely sensible decision at his final meeting before bowing out, the Bank of England Governor Mark Carney will hand over the reins to his successor Andrew Bailey in mid-March without any radical change. With such a sharp recovery in a wide range of U.K. confidence indicators since Boris Johnson’s December election victory, it would have been rash to cut rates now. Much better to wait a while to see how things settle.
Sterling markets took it in their stride, with the pound gaining modestly and 10-year U.K. government bond yields trimming some of their recent sharp declines.
After dovish speeches this month from three members of the BOE’s monetary policy committee, including Carney himself, expectations of a rate cut had ratcheted up. Instead, in a repeat of the last meeting, the MPC decided by a 7-2 vote to hold fire and see how the economy performs now the twin events of Brexit and the general election are passing by.
Still, looked at more closely this is a dovish move, as any prospect of the bank’s previous commitment to “limited but gradual” tightening has been removed. That pledge was already looking pretty stale after a very weak fourth quarter in the U.K., ahead of an election that finally settled the Brexit question once and for all. The country is coming out, the only question now is what is the real economic cost and can Britain strike a reasonable trade deal with the European Union.
As Carney said in Thursday’s press conference, the last decade “ended with a whimper” for the U.K. economy. His analysis of recent more forward-looking economic data was also relatively downbeat: “This is less of a case of so far so good, and more a case of so far, good enough.”
That leaves alive the prospect of a rate cut at the BOE’s next big meeting in May. The market still puts the likelihood of a 25 basis point cut at 50%. The bank was certainly careful to lay the ground for a future reduction as it substantially lowered its growth forecasts by 0.4% points for both this year and next, to 0.8% and 1.4% respectively.
However, this doesn’t factor in any potential fiscal stimulus that might be unleashed by Chancellor Sajid Javid in his March 11 budget then, so the prospect of a cut could simply fade away if the economy really does pick up. That will now be up to the next governor.
The Carney era of the last six years is coming to an end. He was the “rock star” central banker brought in to shake up an old-fashioned institution. He oversaw a radical review of many hidden parts of the central bank, which injected some much-needed energy. On the flipside, the more visible part of his role in setting interest rates has been far from smooth sailing as he navigated the choppy political waters of Brexit.
His replacement Bailey is the ultimate safe pair of hands. The mood music may quieten down with him.
To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Marcus Ashworth is a Bloomberg Opinion columnist covering European markets. He spent three decades in the banking industry, most recently as chief markets strategist at Haitong Securities in London.
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