Bank of England Governor-designate Mark Carney met the U.K. Treasury’s top civil servant, Nicholas Macpherson, to discuss possible changes to Britain’s monetary policy making, said a person with knowledge of the talks.
They discussed the options in Ottawa last week, according to the person, who declined to be identified because the conversation was private. The meeting came two weeks before British Chancellor of the Exchequer George Osborne presents his annual budget, which may be used to modify the central bank’s role in an economy facing a potential triple-dip recession.
Carney, governor of the Bank of Canada since 2008, takes over from Mervyn King at the Bank of England on July 1. The 47-year-old former Goldman Sachs Group Inc. banker sparked the debate when he suggested last year that central banks could target nominal gross domestic product. He told U.K. lawmakers last month that he sees merit in making the inflation target more flexible.
“To achieve a better path for the economy over time, a central bank may need to commit credibly to maintaining highly accommodative policy even after the economy, and potentially inflation, picks up,” Carney said Feb. 7. “There is merit” to considering the U.S. Federal Reserve’s practice of tying policy to inflation and unemployment thresholds, he said.
A spokesman for the Treasury in London, who declined to be named in line with government practice, said Macpherson, the department’s permanent secretary, was in Canada for meetings at several government departments. He confirmed that Macpherson met Carney and declined to comment on the substance of their talks. Jeremy Harrison, a spokesman for the Bank of Canada, said the Ottawa-based central bank does not comment on the governor’s private schedule.
Osborne’s options for reviving an economy that has barely grown during almost three years in office are limited by his determination to stick with his deficit-reduction plan that critics say has limited growth. U.K. industrial production unexpectedly dropped in January, the national statistics office reported today.
Easing the central bank’s inflation-targeting remit would allow him to fend off detractors, including Liberal Democrat Business Secretary Vince Cable, who say he isn’t doing enough. The chancellor hasn’t yet decided whether any changes will be presented at the budget, a Treasury spokesman said last week.
Under the 1998 law granting it independence, the Bank of England is charged with maintaining price stability and supporting the government’s policies, including its objectives for growth and employment.
Carney has signaled support for allowing the bank more flexibility in meeting its 2 percent inflation goal and promoted the idea of issuing guidance on longer-term policy. He said last month that his role at the central bank will be to help with its “re-founding.” In a speech in December, Carney said nominal GDP targeting could be a “more powerful tool” to simulate economies.
“The benefits of any regime change would have to be weighed carefully, not only against the potential risks but also against the effectiveness of other unconventional monetary measures under the proven, flexible inflation-targeting framework,” Carney told U.K. lawmakers last month.
Osborne said on Dec. 13 that he welcomes a debate on the target, while telling lawmakers that he has “no plans to change the framework.”
The Financial Times last week said officials are looking at options including giving the bank more room to tolerate inflation over a longer time-frame or changing the goal altogether to give it a U.S.-style dual mandate to target inflation and jobs.
Bank of England Deputy Governor Charles Bean said on Feb. 27 that it may be appropriate to review the inflation-targeting regime, and that policy makers should stand ready to take further measures to boost the recovery if required.
Bean said the current U.K. framework is already flexible and incorporates growth and employment. His comments echo those of policy makers Paul Tucker and Ian McCafferty, who have said the BOE’s remit allows it to look through temporary periods of above-target inflation to ensure stable output.
Osborne said in December that “the inflation target has served us well; if you were going to move away from it, Parliament would want to be satisfied that we’d have significant rewards from it.”