Carney Faces Lawmakers as Brexit Battles Sweep Into New Yearby and
Bank of England governor to appear before Treasury Committee
Governor under fire as economy holds up better than expected
Mark Carney is starting 2017 exactly where he left off: in front of his fiercest critics.
In parliament’s first week back from recess, lawmakers have the chance to haul the Bank of England governor over the coals again. He faces the Treasury Committee on Wednesday after multiple fiery exchanges last year in which he was grilled on the Brexit vote, record-low interest rates, central bank independence and even his own tenure.
The BOE’s chief economist last week sparked an uproar with his admission that policy makers’ didn’t get the forecasts right for a Brexit-induced slowdown. Before the June 23 vote, Carney said leaving the European Union could push the U.K. into recession, and the economy has expanded steadily since. The bank’s board has said it’s worried about the institution’s reputation after the media’s criticism.
“The BOE is increasingly being drawn into the political sphere,” said Peter Dixon, an economist at Commerzbank AG in London. “To some extent Carney’s being hung out to dry, and I rather suspect that the failings of the so-called expert world, or the establishment, may need a victim at some point.”
BOE policy makers are entering the new year on the defensive. Last month lawmakers announced a review of the effectiveness of the central bank’s aggressive policy loosening since the financial crisis, placing Carney firmly in the spotlight of a global debate.
The committee will explore topics including whether monetary policy is out of ammunition, the scope for further expansion and whether central bank easing is worsening inequality. While data Tuesday showed the gap in U.K. incomes narrowed in the year through March, workers are still worse off than before the financial crisis.
The same group of lawmakers, including vocal critics Jacob Rees-Mogg and Steve Baker, is questioning Carney and members of the Financial Policy Committee this week. That panel oversees the banking system and isn’t the part of the BOE that sets interest rates.
Officials might have hoped to draw a line under 2016, a year that saw calls for Carney’s resignation over the BOE’s overly pessimistic post-Brexit forecasts, as well as accusations that policy is deepening inequality. While Prime Minister Theresa May tried to row back her comments on the “bad side effects” of stimulus, some members of her Conservative Party kept the pressure up.
Even as the Canadian governor extended his planned tenure at the end of last year, he drew the ire of the Treasury panel’s chairman Andrew Tyrie, who demanded an explanation for his failure to serve the full statutory term.
The tirade of criticism prompted a majority of economists to expect the U.K. central bank to lose some of its independence in the near future, a survey showed yesterday.
The challenges facing the BOE look set to mount as May plans to trigger formal negotiations for Britain to leave the EU in the coming months. Chief Economist Andy Haldane on Thursday described the outcome of that as “not just unknown, but unknowable” for economic forecasters. He spoke after comparing economists before the 2008 financial crisis to Michael Fish, a U.K. weatherman who in 1987 wrongly predicted that a deadly hurricane wouldn’t reach Britain.
“Brexit is obviously an incredibly divisive issue and it’s going to put the BOE in a difficult position,” said Rob Wood, chief U.K. economist at Bank of America-Merrill Lynch in London. “The U.K. economy is going to be hostage to political decisions and political noises. It’s going to be a very tough year.”