THE UK is still a “crisis economy”, the incoming governor of the Bank of England said yesterday, after he talked down his ability to revive the country’s struggling recovery.
Speaking in Washington DC, Bank of Canada chief Mark Carney – who takes over from Sir Mervyn King in July – warned that the best he can do is create the conditions for the government and private sector to do more.
His comments on the UK’s plight were most alarming. “The US is breaking out of the pack of crisis economies that include the Eurozone, the UK and Japan,” Carney said, having warned of the limits of monetary interventions.
But sustainable fiscal policy and vital structural reforms from the government will help, he said, allowing the private sector to recover and expand
His comments appear to reject calls from the International Monetary Fund (IMF) for George Osborne to slow down the deficit reduction plan.
“Can central banks deliver sustainable growth? No. What they can do is provide conditions for growth – price stability, helping with balance sheet repair, very importantly helping with the transition,” he said.
“But they cannot deliver long term growth which needs to come through true fiscal adjustment and structural reforms. I’m not going to wade in [on fiscal policy] positively or negatively.”
The comments came after IMF boss Christine Lagarde again called for more state spending in the UK. “We have repeatedly said in the last couple of years that should growth be particularly low, there should be a consideration by way of adjusting the pace [of austerity],” she said. “We support the policy, but what has changed is the quality of numbers. The growth numbers are not particularly good.”
There are fears in the Treasury that the IMF is U-turning to embrace a more hardline Keynesian view, having previously backed the coalition’s plan.
Efforts to consolidate the public finances by one per cent are in line with the IMF’s own recommendations.
Meanwhile, UK businesses are sticking by the policy. “The CBI believes the government should stick to plan A on deficit reduction – no more, no less,” it said yesterday. “This gives the UK credibility in international markets and low borrowing costs. But we also need to see it deliver growth boosting measures on the ground, like promised infrastructure projects.”
Carney backed the role of businesses, yesterday: “Sustainable growth comes from the private sector, not from the IMF, Bank of Canada or anyone else.” The Canadian also praised the US Federal Reserve for telling markets they will not hike rates until unemployment falls below a set rate, indicating he may adopt this policy in the UK.
Julian Harris, Tim Wallace