BETTER a lucky governor than one that’s always right. At least, that’s what Mark Carney will be hoping for as he faces MPs today – almost a year to the day since he took over at the Bank of England. After all, the Treasury Select Committee could find plenty of things to quiz Carney about.
A starter for ten would be his scattergun communication record on interest rates. His volte face this month caused short-term borrowing costs to spike in the biggest one-day jump since 2009 – back when the UK was in the middle of a financial crisis.
The Monetary Policy Committee minutes may say the Bank was surprised a rate rise hadn’t been factored in earlier – but most market participants would argue they had simply trusted the governor.
But it’s not just Carney’s credibility in the bond market that’s at question. The governor got it wrong on his unemployment target, and his fuzzy guidance has been, well, fuzzy, testing the patience of politicians and borrowers alike. Certainly, even Carney couldn’t pretend to have got it right in his forecasts about the pace of Britain’s recovery.
On Friday, figures from the Office for National Statistics are expected to show that growth continued to steam ahead in the first three months of 2014, increasing from the last reading of 0.8 per cent to 0.9 per cent. With the latest figures showing unemployment is down to 6.6 per cent, and with the economy set to have grown by 3.2 per cent in the last 12 months, it hardly seems possible to justify continued emergency-level interest rates.
But until recently, the “guidance” seemed to be that Carney was in no big hurry to raise rates – believing the economy was still fragile.
Instead, action was to be targeted at soaring asset prices in the housing market, where prices (unlike the consumer price index, up only 1.5 per cent over the past year) have shot up 9.9 per cent in a year – and by 18.7 per cent in London.
Herald the return to 1970s-type credit controls in the mortgage market rather than hiking interest rates across the board. Except, now Carney seems to be saying something completely different, with expectations that we will have both a new set of macro-prudential tools and a rise in interest rates – bad news for first-time borrowers. So maybe MPs can question the governor about why he chose to upstage this Thursday’s crackdown on the mortgage market by the Financial Policy Committee.
Perhaps it is lucky again then that the bank’s own self-imposed purdah will prevent Carney from answering clearly.
Helia Ebrahimi is UK business editor at CNBC.