Thursday, August 29, 2013
Reflections on Carney - trying to end the uncertainty
Posted by David Smith at 10:15 AM
Category: Thoughts and responses

Mark Carney's first big speech, yesterday in Nottingham, has had a lot of coverage. Some of it is about his battle to convince the markets of his version of forward guidance. Some of it rests on the question of whether the 7% unemployment threshold will be reached sooner than 2016, to which his answer was (a) that's unlikely (b) even if it is, 7% is a threshold, not a trigger.

There's also much comment on whether easing the liquidity requirements of banks and building societies, once their capital ratios have reached 7%, will result in much extra lending in the economy.

Those are debates worth having. For me, however, Carney's message was a very simple one. Uncertainty has been a factor holding back recovery, and anything the Bank of England can do to reduce that uncertainty, notably on interest rates, will help recovery along.

So, he said: "Over the past five years, a pervasive sense of uncertainty has held the economy back. The British people have been through the virtual collapse of the financial system, the worst recession in living memory, large job losses, falls in real wages and a, at times harrowing, crisis in the euro area, our most important trading partner.

"Households have been worried about their savings, jobs, earning power and their homes; companies have been concerned about the availability of credit, the health of their suppliers, the viability of their markets and the prospects for their investments. Uncertainty has reduced confidence, dampened spending, and slowed growth ...

"The Bank of Englandís task now is to secure the fledgling recovery, to allow it to develop into a period of sustained and robust growth. We aim to get there in part by reducing the uncertainty that has held back growth. And we are using our full suite of policy tools to help rebuild confidence so that we all can move forward in a sustainable manner."

It is a laudable aim, despite all the quibbles. The question remains whether he can make it work. The full speech is here.