Cast your mind back to last August: new expat on the block Mark Carney had just crossed the Atlantic from Canada to take over as governor of the Bank of England and unveiled his flagship forward guidance policy. Interest rates, we were told, might go up once the unemployment rate had fallen below 7%.
Fast forward a year and unemployment is down to 6.4%, the putative link with interest rates ditched in February when it was clear joblessness was falling faster than anyone had expected. Instead, Carney informed us that any rate rise would take into account a whole range of economic indicators: GDP, investment, productivity and that ever-elusive ‘spare capacity’.
The result? Markets yo-yo at the slightest change in tone from the governor and his fellow Monetary Policy Committee members and second-guessing when rates are going to start rising has become a national obsession.
‘Unreliable boyfriend’ Carney (as christened by MP Pat McFadden) is continuing to confuse: last week, the Bank’s inflation report said stagnating wage growth was its biggest worry (and figures out the same day showed pay continuing to lag inflation). Then yesterday, in a somewhat ironic interview to mark the first anniversary of his essentially-defunct forward guidance policy, the governor said rates may actually have to go up before real wages finally catch up with prices.
‘We have to have the confidence that real wages are going to be growing sustainably [before rates go up]. We don’t have to wait for the fact of that turn to do so,’ Carney told the Sunday Times. Well that clears that one up.
Meanwhile, City MP Mark Field accused Carney of colluding with chancellor George Osborne to not raise rates before next year’s election. ‘For all the talk of Bank of England independence, there was a clear bargain between him and George Osborne,’ he told City AM, an allegation the Treasury said was ‘utterly false’ (potentially a House of Cards-style 'I couldn't possibly comment' diversion there).
If Carney wants to avoid the conspiracy theories, he needs to manage expectations better. Although the ‘yes/no’ dichotomy of a rate rise isn’t going anywhere, he might want to stop flirting with so many different economic indicators.