In the interview, Carney said that in his ‘personal view… given the recovery has strengthened and broadened, I don’t see a case for quantitative easing’. Cue hysteria on the markets, as the pound rose 0.4% against the dollar to $1.6135.
Was Carney copying US Fed chief Ben Bernanke, who sent markets into a similar spasm when he made a speech in June hinting that he would begin ‘tapering’ the US’ version of QE in the next few months? That has yet to come to pass – but investors don’t seem to have noticed, so enthusiastic have they been about ploughing cash back into the US economy. The words ‘self’ and ‘perpetuating’ spring to mind…
‘The advanced economies as a whole are doing a bit better. That’s going to help the UK as a whole. These are more traditional export markets, so that matters,’ continued Carney during his interview.
‘Within the UK, we are probably leading the pack of the major advanced economies as we speak right now.’ Quite a bold claim, that.
Analysts are both pleased and a little taken aback by Carney’s honesty. Jane Foley, a senior foreign exchange strategist at Rabobank, pointed out that he’s ‘unusually candid’.
‘The markets are unaccustomed to hearing a governor be so straightforward,’ she said.
Will he be as straightforward when it comes to dealing with the government’s much-maligned Help to Buy scheme? The Bank of England has been given powers by George Osborne to intervene in the scheme if it feels it’s necessary (ie. if it thinks it’s creating a house price bubble).
The Bank was originally only supposed to take a close look at the scheme after it had been going for three years, but under new plans it will publish annual reviews (from next September). Among the powers suggested are the ability to recommend to the Treasury that it reduces the £600,000 eligibility cap.
The first part of Help to Buy, under which the government provides a loan to buyers worth 20% of the property, was launched in April. The second (and most controversial), under which the government will act as a guarantor on 95% mortgages, launches in January. Various people (ex BoE governor Mervyn King, Vince Cable, dozens and dozens and dozens of analysts) have heavily criticised the scheme, which is presumably why Osborne is giving some of the power (read: ‘responsibility’) over to the Bank of England.
That said, though, by driving up house prices (not to mention the share price of housebuilders), the scheme has played a biggish role in that recovery Carney was discussing with the Yorkshire Post. So it’s doubtful that he’ll want to do much to quell that enthusiasm, for the time being at least. ‘It’ll be reet’, as they say in Yorkshire.