Abigail with attitude: Carney and inflated expectations


Abigail Hofman
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By coincidence, also in February, Euromoney hosted its annual awards dinner for the private banking industry and Tom Kalaris, Barclays’ former head of wealth management, sat at the top table. Kalaris resigned from Barclays last June. I have always liked Tom and will watch with interest how his career progresses. The compere for the dinner was Alastair Campbell, director of communications from 1997 to 2003 for prime minister Tony Blair. Campbell offered one key nugget of advice to the group of assembled financiers: "In order to win the public relations battle, you have to convince public opinion that banks and bankers provide a real service that individuals and the economy need." Obviously, Campbell is correct, but is anyone listening in the banks’ luxurious executive suites?

And talking of previous Labour governments, rumours swirl that Blair is now a "babe-magnet". A recent Vanity Fair article revealed scribblings from Rupert Murdoch’s ex-wife Wendy on how attractive she found the former politician’s legs and "butt". I tip my hat to Blair for holding his own in north American media circles. However, I am becoming disenchanted with Mark Carney, the transatlantic export to the UK, who is viewed as the Bank of England’s riposte to George Clooney.

From Lord King to Sun King: Mark Carney, with his easy-going charm, is a welcome contrast to his predecessor, Mervyn King
From Lord King to Sun King: Mark Carney, with his easy-going charm, is a welcome contrast to his predecessor, Mervyn King
When Carney took over as the new governor last July, we were all infatuated with his cool-dude persona, his dapper appearance in shorts at a summer music festival and his man-bag. Now we are not so sure. Of course, Carney, with his easy-going charm, is a welcome contrast to his predecessor, Lord King. King never seemed to desist from sanctimonious hectoring and dour hints about a looming triple-dip recession.

As Carney pranced into town, so, metaphorically speaking, the sun came out. Sterling soared, growth roared and unemployment fell. For me, the only problem is that I really don’t understand what the bloke is on about, and if I don’t understand, the 99% of the population who are not economists don’t understand either. Carney’s new big thing last August was forward guidance. In other words, that interest rates would not be increased and quantitative easing would not be reduced before the rate of unemployment fell to 7%.

At this time, the BoE thought that the hurdle of 7% unemployment would probably not be reached until mid-2016.

A mere six months later, Carney has changed his mind. The unemployment rate has fallen much faster than expected. Forward guidance is out and fuzzy guidance is in. Carney announced that the BoE’s interest-rate policy would now be determined by five different elements centred on the output gap – or spare capacity in the economy. For normal mortals, this is so obtuse that when I read about it, I lose the will to live.

What I take away from Carney’s February pronouncement is that he wants to see UK interest rates stay low for a long time, probably until the next election in May 2015. That is his prerogative, but low rates punish savers and fuel a boom based on inflating asset prices and consumer credit. I am not happy.

I am also casting a surreptitious glance over my left shoulder at the Canadian economy. Carney was the governor of the Canadian central bank for five years starting in early 2008 and was feted as the man who fixed all of Canada’s problems. Unfortunately, he left his successor, Stephen Poloz, an economy saddled with household debt and soaring house prices prompted by record low interest rates. The Canadian dollar has fallen about 7% against its peers since canny Carney left. A mole, who visited downtown Toronto last summer, whispers: "I just could not believe what was going on, block after block of empty sky-scrapers. If that’s not a bubble waiting to burst, I don’t know what is. If I were you, I’d watch the results of the big Canadian banks very carefully, they may have to start provisioning against their property exposure soon."

How was your month? Please send news and views to Abigail@euromoney.com