Carney Sees No Case for More QE as U.K. Recovery StrengthensJennifer Ryan and Eshe Nelson
Bank of England Governor Mark Carney said he doesn’t see an argument for expanding quantitative easing as the recovery has gained traction.
“My personal view is, given the recovery has strengthened and broadened, I don’t see a case for quantitative easing and I have not supported it,” he said in an interview with the Yorkshire Post published today on the newspaper’s website.
Carney spoke during a visit to the northern town of Leeds, according to the newspaper. Advanced economies are “doing a bit better” and that will benefit the U.K. through increased demand for its exports, while the recovery is occurring across a range of industries, he said. The comments were confirmed by the BOE.
“The recovery is broadening, so it’s more than just recovery in a particular sector of the economy and we are seeing an associated pick-up of growth in Europe, and the United States is continuing to perform well,” he said. “Within the U.K., we are probably leading the pack of the major advanced economies as we speak right now.”
The pound rose as much as 0.6 percent against the dollar after the comments were published and traded at $1.6087, up 0.3 percent from yesterday, at 11:44 a.m. in London.
“It would be very difficult for the bank to restart QE while the economic data is as strong as it is,” said Simon Wells, an economist at HSBC Holdings Plc in London. “We may see some upgrades to the bank’s forecasts in November.”
The U.K. economy expanded 0.7 percent in the third quarter as consumer spending picked up, offsetting a drop in business investment. Output is still 3.3 percent below its previous peak.
A sustainable recovery will depend on “gradually getting incomes up, more people into work, but also getting wages up over time and that’s going to come from sustained demand and a balanced recovery,” Carney said.
The BOE’s Monetary Policy Committee unanimously voted this month to hold its key interest rate at a record low of 0.5 percent and its bond purchase plan at 375 billion pounds ($604 billion). Officials have pledged no change to the rate at least until unemployment, now at 7.7 percent, drops to 7 percent.
“This is a policy for the U.K. as a whole and the point is that businesses and households understand that we are not going to look to raise interest rates until we see the economy really growing,” Carney said. “Using that 7 percent unemployment threshold is the point at which we begin to think about tightening.”
Carney said that guidance is consistent with economic growth broadening across the country. Officials are “well aware that the level of unemployment in the region is nearer to 9 percent than it is to the national average of 7.7 percent,” he said, referring to the Yorkshire area.
U.K. banks are “a lot stronger than they used to be,” Carney said. “We have had some difficult discussions over the summer to ensure that a couple of the major institutions had credible plans to get them to what we view as a very important threshold of capitalization.”
“Those plans are in place,” he said. “They have been acted upon. So the core of the system is now at a level where their capital and liquidity is consistent with supporting the recovery and that’s incredibly important.”
Global banks have raised about $500 billion in capital over the past five years in the aftermath of the financial crisis, and are moving closer to complying with global capital rules, Carney said in a speech in August.
Signs of economic recovery were contrasted by a 2.7 percent drop in business investment in the second quarter, data showed yesterday. The statistics office estimated that it had risen 0.9 percent in the first quarter.
Carney said the central bank is “working for the British public” to strengthen lenders. “You can’t lend unless you’re adequately capitalized and that’s been proven time and time again,” he said. “Getting the U.K. banks and building societies to that capital threshold has been incredibly important and I would say the institutions in this region were at those thresholds in advance of some of the larger institutions in this country.”