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All Change at the Bank of England?

Mark Carney had been a strongly tipped candidate at the start of the recruitment process. If his appointment came as a surprise, it’s because he seemed to rule himself out of the running. His reward package – including salary and the shortened five-year contract – suggest he could name his price, probably to compensate for the domestic upheaval.

Carney has much to recommend him, strong academic credentials and wide international experience. But the appointment also has another appeal: it sends a clear signal about the UK’s openness to global talent when one of the top jobs in British public life is thrown open to the world.

What about Carney’s record as Bank of Canada Governor? The contrast between the strong Canadian economy of recent years and the poor UK performance may explain Mr Osborne’s choice. However, the Bank of Canada was helped by its banking system being less open, competitively and internationally, than the UK’s. It was also helped by having a far stronger fiscal background than Britain currently experiences. Nonetheless, the international reputation of the new Governor will help restore the credibility of UK macroeconomic policy ahead of the Chancellor’s Autumn Statement on 5th December, when we will most likely learn that fiscal policy is badly off course.

The new Governor will have his work cut out for him: he will have to undertake the institutional re-building of the ‘old’ parts of the Bank, which failed badly in 2007 and 2008, as well as integrating its new regulatory responsibilities. And though this is a strong appointment there are grounds for some reservation Mark Carney appears to be an enthusiastic and hard-line financial regulator. That would have been the correct approach before the financial crash. However, it could perversely damage any economic recovery at present, when the main macroeconomic need is to get money and credit flowing more freely.

*David B Smith is Visiting Professor in Business and Economic Forecasting, Derby Business School & Chairman of the IEA Shadow Monetary Policy Committee. He is author of the Politeia pamphlet Crisis Management: How British banks should face the future.

David B. Smith

David B. Smith is a City economist who worked as a macroeconomic modeller and economic forecaster, predominantly in banks (including the Bank of England) and security houses (1968-2006). He maintains his own macroeconomic forecasting model at Beacon Economic Forecasting. His Politeia publications include Britain's Taxable Capacity: Has it Reached the Upper Limit? (2020), The Brexit Settlement and UK Taxes (2018) and Banking on Recovery: Towards an accountable, stable financial sector (as co-author, 2016).

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