Market expectations around the new Bank of England governor’s arrival are high. The consensus is that the Canadian will reveal a box of tricks to magically solve all of the UK’s financial issues. It is not, however, going to be that simple. The options available to him are limited. Carney faces the same Monetary Policy Committee as Sir Mervyn King. So if he believes more QE is necessary, he will have to provide a persuasive case for more stimulus – tough, as the outlook for the UK economy is beginning to look better. Historically, monetary policy decisions take around two years to have any effect on the real economy, so for those expecting speedy results, there will be disappointment. While the government proposes that economic growth is looking stronger, the road to recovery remains fitful and fragile. So Carney will likely suggest alternative measures in addition to QE. But how amenable will the Bank be to any radical moves he may suggest?
Dean Cook is investment research analyst at Duncan Lawrie Private Bank.