Mark Carney’s term as the Governor of the Bank of England is due to expire this March. This post will briefly explore his final thoughts and contributions as governor which have been especially relevant throughout the process of Brexit. Carney is an economist and banker who began his career at Goldman Sachs before joining the Canadian Department of Finance. He assumed his current position after serving as the Governor of the Bank of Canada from 2008 to 2013.
Carney’s contributions on Brexit throughout the past four years have featured persistent warnings of the potentially detrimental impact on the UK economy. These cautions triggered a significant backlash from Brexit activists who accused him of making statements that encouraged continued membership. The prospect of a No-Deal Brexit was particularly concerning to Carney who insisted that large components of the UK economy were severely unprepared. This lack of preparation stemmed from the lack of firm contingency plans in place. Carney’s reservations about Brexit were varied but his main concerns involved the implications of a disorderly Brexit which he feared may extend to a sharp decline in demand for UK assets, ‘depreciating sterling and tightening financial conditions for UK households and businesses through adjustments in equity prices and corporate/bank funding costs’.[1]
Due to these cautions, reports this week of Carney’s optimistic outlook for the UK economy came as a huge surprise. Carney explained his projections to Reuters claiming “in an environment where everything is getting a fresh look, it’s fertile ground for taking a step back and making bigger changes than otherwise might have been made”.[2] Many sources have attributed Carney’s sudden shift to optimism to the reduction of uncertainty as he recently claimed “we are already seeing a rebound in confidence, business confidence and to some extent a firming of consumer confidence’.[3] Economists increasingly associate this confidence boost with higher levels of investment and growth.
Evidently, Carney has a list of economic problems the UK must address in order to become strong and now hopes Brexit will serve as an opportunity for significant improvement. Carney has described the UK’s main economic problem as weak productivity which has the potential to severely inhibit growth in the long-run. The UK productivity crisis has been a recurrent theme for many economists as the output per hour worked, a key driver of economic growth, has been ‘effectively flat-line since 2008’.[4] Structural factors such as weak productivity strain the UK by keeping interest rates low which Carney does not expect to change in the near future.
In addition to productivity concerns, Carney cites the UK’s inadequate infrastructure as significantly limiting to the economy and suggests that higher public investment in infrastructure and higher corporate spending would provide a necessary boost. Arguably, the issue of infrastructure closely links to Boris Johnson’s main priority of addressing regions in the UK which exhibit growth rates vastly inferior to London. He has relentlessly expressed his desire for these parts of the country to ‘level-up’.[5] This week Johnson approved the highly controversial High Speed 2 rail link which may play a key role in the ‘levelling up’ process.
In conclusion, Carney’s continued economic insights have played a key role throughout the process of Brexit and have generated significant discussion. Carney’s successor Andrew Bailey has exhibited noticeably differing views on the impact of Brexit. Bailey’s optimism fuelled his description of Brexit as a “chance to restore the City’s independence” by ditching the ‘Brussels red tape which damages the financial sector … and adapting other regulations to better suit the UK”.[6] Ultimately, Bailey’s prediction of favourable regulation generating a spur in innovation is vastly different from Carney’s contribution. Meanwhile, Carney will continue to assume a central role in the UK economy. He is due to be Boris’ climate change advisor ahead of the upcoming UN climate change summit, an issue he has expressed consistent interested in. Carney first urged companies to be more open about their climate change footprint in 2015 which was ‘years before other central bankers began talking about the subject.’[7]
[1] Angharad Carrick, ‘Now Mark Carney sees a silver lining to Brexit’, City AM (February, 2020). https://www.cityam.com/mark-carney-sees-silver-lining-in-brexit-hit-to-economy/
[2] Angharad Carrick, ‘Now Mark Carney sees a silver lining to Brexit’, City AM (February, 2020). https://www.cityam.com/mark-carney-sees-silver-lining-in-brexit-hit-to-economy/
[3] ‘Highlights: Bank of England’s Carney speaks about Brexit, technology and climate change’, Reuters (February, 2020). https://www.reuters.com/article/us-britain-boe-carney-highlights/highlights-bank-of-englands-carney-speaks-about-brexit-technology-and-climate-change-idUSKBN2080TI
[4] Harry Robertson, ‘Bank of England’s Mark Carney says infrastructure investment needed to boost growth’, City AM (February, 2020). https://www.cityam.com/bank-of-englands-mark-carney-says-infrastructure-investment-needed-to-boost-growth/
[5] Angharad Carrick, ‘Now Mark Carney sees a silver lining to Brexit’, City AM (February, 2020). https://www.cityam.com/mark-carney-sees-silver-lining-in-brexit-hit-to-economy/
[6] ‘New BoE boss Andrew Bailey hails Brexit as a chance to restore the City’s independence’, Daily Mail City & Finance Reporter (February, 2020). https://www.thisismoney.co.uk/money/markets/article-7996861/New-BoE-boss-Andrew-Bailey-hails-Brexit.html
[7] ‘Factbox: Carney’s time at the Bank of England, from Brexit to climate change’, (February, 2020). https://www.reuters.com/article/us-britain-boe-carney-factbox/factbox-carneys-time-at-the-bank-of-england-from-brexit-to-climate-change-idUSKBN2080VQ
Financial Institutions 1850-2020 