Carney Has October Pause to Decide BOE Future in Brexit Economy

  • Governor has said he will clarify intentions before year end
  • Economists say need for stability during Brexit is vital

Why Carney Needs to Think Carefully About His BOE Future

Mark Carney might finally have some time to decide if he wants to stay on at the Bank of England into the next decade.

After being too preoccupied with the Brexit vote fallout to think about his future, the governor now has less than 90 days before a self-imposed deadline to declare a desire to serve his full eight-year term through 2021, or leave in 2018 as originally planned. His new schedule of fewer interest-rate meetings means there’s no monthly decision for the first time in October -- giving him some breathing space to make up his mind.

Mark Carney

Photographer: Chris Ratcliffe/Bloomberg

Britain’s vote to leave the European Union could be a reason to stay, along with the lack of an obvious role for him to move on to. It would allow Carney to provide continuity for the economy at a time of uncertainty, and Chancellor of the Exchequer Philip Hammond -- who said on Thursday he’d welcome Carney staying for the full term -- would be relieved of the burden of finding a replacement.

“Brexit is ongoing and there is a need to see that through,” said Charles Goodhart, a former BOE policy maker and a professor at the London School of Economics, who expects Carney to stay on. “The fewer uncertainties there are, the better. There is a need for stability.”

Brexit Tensions

The pound’s decline to a three-decade low has underscored that need, while fault lines within the post-referendum government over how to approach the EU exit show the continuing potential for confusion. Prime Minister Theresa May has already had to rebuke three of her key Brexit lawmakers, David Davis, Liam Fox and Boris Johnson, and was reported to be unimpressed by a dispute between Johnson and Fox over the roles of their departments. 

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With May planning to activate Article 50 of the EU’s Lisbon Treaty by the end of March next year, starting two years of formal discussions on an exit, a Carney departure in June 2018 risks further agitating uncertainty at a time when steadiness might be crucial. Canadian-born Carney, who also holds an Irish passport, joined the BOE in July 2013.

‘British Hero’

“I’ve been critical of him on a number of occasions, but in the last six months I think he’s been a great British hero and we should do everything we can to make him stay,” former BOE policy maker Danny Blanchflower said in a Bloomberg Television interview with Francine Lacqua. “Imagine today if Mark Carney said he was going to leave. That would have really bad effects on the markets.”

A BOE spokesman said nothing has changed and Carney will announce his decision by the end of the year.

Still, that may not stop people from asking. Even without an October decision, Carney’s calendar presents a number of opportunities for questions, starting with a public forum next week in Birmingham and then press conferences after both the November Inflation Report and Financial Stability Report. These are usually followed by appearances at Parliament’s Treasury Committee, which publicly requested in January that he clarify his plans.

Personalities

Carney’s choice might also depend on his rapport with politicians who didn’t choose him. May, who succeeded David Cameron as prime minister, replaced Carney’s champion George Osborne as chancellor, one of a number of breaks she made with the previous administration. She’s also criticized BOE policies, saying Wednesday that ultra-loose monetary policy had some “bad side effects” and increased inequality.

“I think the governor’s doing a good job,” Hammond said in a Bloomberg interview in New York. “He will make his decision in due course and that’s his decision, he made that very clear, but I certainly would welcome his decision to stay if that is the decision he makes.”

Not everyone approves of Carney’s statesman-like manner. While his steady hand, combining contingency planning before the Brexit vote and policy action in its aftermath, won him plaudits from Remain and some Leave campaigners, he faced accusations from others that his approach was too political and he had overstated the risks of exiting.

Vocal Critics

“He’s behaved disgracefully,” former Chancellor Nigel Lawson said on LBC Radio last month. “It is appalling. The sooner he stands down from the governorship, the better.”

One prominent Leave economist still called for him to remain at the helm of the 322-year-old central bank.

“He’s justified to stay,” said Gerard Lyons, a strategist at Netwealth Investments and co-chair of the Economists for Brexit group. “He’s done a good job and some of the criticisms of the bank are overdone. The policy project still needs to be fully worked through after the referendum.”

In August, Carney told reporters that being BOE governor was an “absolute privilege,” as he brushed off a question about how long he was likely to stay.

‘Flat Out’

“We have been flat out since the run up to the vote,” he said, just after announcing a stimulus package that included rate cuts and bond buying. “I can candidly say I have not had a moment to sit back and reflect on an issue that I said I wouldn’t come back to until the end of the year.”

Some observers point to the lack of an alternative role for Carney if he quits in 2018. While his predecessor Mervyn King has largely focused on academia since moving on, it seems unlikely Carney -- who will be 53 in two years time or 56 if he stays for the full stint -- would want to follow in his footsteps so soon.

If he had any political ambitions back home in Canada, the long-rumored idea that he could lead the Liberal Party appears off the table. Some doubted Canadian Prime Minister Justin Trudeau’s staying power after being elected last year, but with strong approval ratings, it seems he’ll be in office for the long haul. 

Since the eight-year term as BOE governor isn’t renewable, one possible job opening in 2021 will be managing director of the International Monetary Fund. Current IMF head Christine Lagarde started her second five-year term in July this year.

“Carney is very ambitious and has exhibited lots of kind of global statesman-like ambitions in some of his speeches,” said Chris Hare, an economist at Investec and former BOE official. If the IMF is a job he wants, “then staying on for the full eight years would potentially set things up quite nicely, at least from a timing perspective. On every level, I think Carney is more likely to stay than go.”

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