I have long been a huge critic of the Bank of England, writing many posts in the bubble demanding interest rates rises and then watching them pump the bubble with no idea on how to close it. Worse, the BOE have popped the cork on Quantitative Easing and it seems they will not stop anytime soon despite the lack of impact it has had on the real economy.
So George Osborne, a highly conservative chancellor, who in effect is not much different to Alistair Darling, the previous incumbent has gone for a big change. This has been celebrated around the City as a bold choice.
Carney has a reputation as a hawk and this, given the above mistakes, has been viewed as a good thing. But is a hawkish BOE Governor what we need now as we enter a 5th year of potential recession post the 2008 financial crash.
Raising rates has its attractions but the Main UK lending banks will suffer as their bad loan books are still quite large - £80 billion for RBS and over £100 billion for Lloyds. With all of the banks hugely scaling back their investment banking operations the possibility of large profits has gone the way of the fairies. Higher rates also risk moves on the mortgage book impairments as the leveraged UK borrowers have grown used to low rates and low repayments.
Carney too has to take over a the macro prudential part of the FSA which will be distracting in the first instance as the integration of staff and the systems of the rather pushy FSA into the sleepy and Ivory tower types of the Bank of England.
The current BOE committee is quite dovish and this might save Carney as he fails to get backing. Yes to stopping QE but not to raising rates. But the UK economy is on life support and has been for sometime, with few signs of anything changing in the near future. Government spending is too high, austerity will have to continue for years to come and there is no support from the Eurozone of elsewhere. It's high risk to tighten policy too much from here.
With all this in mind, I don't think Carney will prove a big success, much like Sven Goran Eriksson a promising start and good wishes will not prove enough in the long-term....
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