Carney takes over Bank of England hot seat

Carney takes over Bank of England hot seat

New Bank of England governor Mark Carney becomes one of the most powerful central bankers in the world today when he takes the reins at a crucial time for the economy.

The Canadian arrives amid mounting expectation of a more activist stance towards monetary policy as the Bank looks to keep the UK recovery on track.

Hailed as the “outstanding central banker of his generation”, Mr Carney arrives from the Bank of Canada, where he is credited with helping the Canadian economy recover faster from the downturn than any other developed major nation.

He takes office amid mounting signs of recovery in the economy but recent official figures revealed how far the UK has to go before returning to its pre-crisis conditions.

Widespread revisions by the Office for National Statistics meant that the double dip recession at the end of 2011 and first half of 2012 was erased from history.

However, revised data revealed the initial recession following the financial crisis was far worse than first feared, which means the economy is now even further behind its pre-crisis level.

GDP is now 3.9% lower than its peak in the first quarter of 2008 – previously it was estimated to be 2.6% below.

One of Mr Carney’s first tasks will be to chair the Monetary Policy Committee’s monthly meeting as it gathers on Wednesday and Thursday to decide on interest rates.

While economists are not expecting any action in July, many believe the Bank will move to cement the recovery over the next few months.

Vicky Redwood, at consultancy Capital Economics, said: “Bold action by the new governor would help to cement any recovery, but he cannot afford to be timid.”

She added: “The recent pick-up in the economic news has begged the question of whether Mr Carney actually needs to do anything any more.

“But the recent modest improvement is still far from the ”escape velocity“ he has said he wants to achieve.”

More on Mr Carney’s plans for monetary policy are expected from August onwards, with the possibility of introducing specific forward guidance on the cards as well as a further cash injection into the economy.

His thoughts on the economy will be outlined when he makes his debut at the inflation report press conference on August 7 – his first major media appearance.

Mr Carney will be the first non-British citizen to govern the Bank of England in its 319-year history when he takes the helm.

Hand-picked by Chancellor George Osborne to head the Old Lady, the 48-year-old will lead an institution now responsible for financial stability and keeping Britain’s banks on an even keel – as well as its main task of monetary policy.

It was this track record which prompted Mr Osborne to overlook favourites including Bank veteran Paul Tucker and Adair Turner, the former chairman of the City watchdog.

Mr Carney, who will receive an £874,000 pay package – including a £5,000-a-week housing allowance – inherits a venerable institution which has expanded rapidly in recent years.

The Bank’s workforce has almost doubled to 3,500 from about 1,800 in 2008.

He has already started shaking up the Bank, recently appointing a senior female banker to the new role of chief operating officer to help ”catalyse change”.

Charlotte Hogg, the head of retail at Spanish-owned lender Santander UK and the daughter of former Conservative minister Douglas Hogg, will take responsibility for all day-to-day management of the Bank.

He also faces the challenges of hiring two new deputy governors in his first year after Paul Tucker announced his plans to depart, while Charlie Bean is also due to leave at the end of June next year.

Mr Carney has already said he will only serve a five-year term, having agreed to take the job after the term was cut from eight years – partly to reduce disruption to his children.

The ice hockey fan, born in Fort Smith in the Northwest Territories of Canada, describes himself as someone who knows “how to lead, when to delegate and how to forge consensus”.

He studied at Harvard and Oxford universities, and had a 13-year career with Goldman Sachs before becoming deputy governor of Canada’s central bank in 2003.

In 2008 he stepped up to governor, just as the financial crisis was erupting.

His arrival comes with financial markets struggling to come to terms with the prospect of central bank support tapering off – especially in the United States - with economic data beginning to show signs of improvement and policymakers anxious about driving up inflation.

A sharp lending squeeze in China in recent weeks has also cast doubt over growth in the world’s second biggest economy, causing further ripples of nervousness across global stock markets.

While Threadneedle Street is currently more focused on the holy grail of growth rather than inflation remaining stubbornly above its 2% target, the Bank will be concerned the City does not see it as overly lax in its approach to price rises as it deploys its twin weapons of interest rates and QE to stimulate the economy.

It means that while there is little sign of the Bank rate being increased any time soon from its historic low of 0.5%, there is some resistance on the Monetary Policy Committee (MPC) to lifting QE from its current level of £375 billion.

Whether Mr Carney – variously described as a “rock star” and the George Clooney of central banking – can sweep away the doubts of fellow policymakers remains to be seen.

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