Mark Carney on Scotland, rates, QE and the housing boom
03-12-2014
The Governor of the Bank of England was girlled for five hours by the Treasury Select Committee
Bank of England governor Mark Carney speaks during the bank's quarterly inflation report news conference at the Bank of England in London
Mark Carney said it was a 'distinct possibility' that the Royal Bank of Scotland and Lloyds Banking Group would have to shift their headquarters out of Scotland Photo: Reuters
Louise Armitstead
By Louise Armitstead, Chief Business Correspondent
After almost five hours of questions, Andrew Tyrie finally called the Treasury select committee’s grilling of Mark Carney to a halt. The chairman admitted that, over a “long and demanding morning”, the Governor had been quizzed on a range of subjects that would ordinarily have been spread over several separate sessions.
The potentially explosive issue of whether the Bank turned a blind eye to manipulation of the foreign exchange markets was left until last. But by then, the Governor, who was given a distinctly more rocky ride than on his debut, had already faced a series of awkward questions – and raised some eyebrows at the same time.
Scotland
In a bombshell for Alex Salmond, Mr Carney said it was a “distinct possibility” that the Royal Bank of Scotland and Lloyds Banking Group would have to shift their headquarters out of Scotland following a “yes” vote in September. The Governor insisted that he was strictly neutral on the referendum but argued that European rules, such as those on passporting, made it likely that the taxpayer-backed banks would quit Scotland.
Asked if the Bank of England could continue to provide services to Scottish institutions, from settlements to being lender of last resort, Mr Carney was notably non-committal.
“We can act as lender of last resort to branches of foreign banks, but we don’t have to,” he said. The Bank would have to “evaluate the suitability” of Scottish banks before agreeing to any oversight, he said, including the “credibility and viability of monetary policy” behind them.
He agreed with MPs that the banks’ case would be helped if they were still part of the European Union or overseen by the European Banking Authority, but that other factors would matter, too: “It’s a bit like being pregnant, you can’t be half-viable in a currency union.”
The Governor surprised MPs by saying Scottish independence was “not a priority” at the Bank since all major political parties had ruled it out. “This is a risk that’s coming down the line very fast, Governor,” Mr Tyrie warned. Mr Carney retorted that the Bank was “well advised of the risks”.
Forward guidance
Large parts of the Governor’s two-hour grilling on the inflation report was taken up by an attack on his flagship Forward Guidance policy. Mr Carney was accused of switching “explicit guidance” – his policy that the Bank would only review interest rates once unemployment dropped below 7pc – for “18 new goalposts” and “fuzzy guidance”.
To the charge that he was wrong-footed by the fast drop in the jobless rate, Mr Carney snapped back: “I have absolutely no regrets that we’re sitting here in March with half a million more people in work.”
However, MPC member Martin Weale said the drop had “reinforced” his doubts about the policy. Mr Carney also revealed he was among the dovish policymakers arguing that the spare capacity in the economy was slightly more than the 1.5pc of GDP view held by the MPC.
Quantitative easing
The Bank’s £375bn emergency money printing programme may never be wound down, Mr Carney told MPs.
The Governor agreed that the sale of the gilt stock, bought with electronically created money at the apex of the financial crisis, would have a big impact on debt markets, but he added: “We’re not going to sell £375bn of gilts. That’s a hypothetical question, purely hypothetical.”
He said an unwinding would not take place before “several adjustments” to interest rates. Even then, he said the Treasury would not have a say in the decision. “With respect to the Treasury, it’s a monetary policy decision,” he said.
Property boom
Mr Carney told MPs that the Bank “does not have tools to directly affect” the property boom fuelled by foreign cash buyers. But he said he and the Bank officials were carefully monitoring the mortgage market in case of risks. Asked about George Osborne’s Help to Buy Scheme, the Governor said he’s keeping a “very close eye” on it.
Destroyed recordings
In an admission that just slipped out, Paul Fisher, director of markets, said recordings of MPC meetings are automatically destroyed, leaving just the minutes as a record.
He said the “free-flowing discussion” of nine economists was difficult to follow once it had been described. Mr Tyrie was appalled and demanded that the policy be reviewed. After the meeting, Mr Tyrie said records should be kept to “bolster public confidence that the minutes published after MPC hearings are an accurate reflection of what was said”.