Carney must use all weapons at his disposal if he's to propel recovery into the stratosphere
Mark Carney will will need more than a couple of quarters of modest economic growth before he can sit back and put his feet up. The lantern-jawed Canadian was hand-picked by George Osborne to run the Bank of England because he is what the chancellor calls a "monetary activist"; and Carney has made it clear that he won't rest until the economy achieves what he calls escape velocity – which probably means something a bit more impressive than 0.6% quarterly growth in GDP.
Carney has been positively hyperactive since taking over on 1 July, not least placating feminists by promising to put Jane Austen on the tenner. He evidently made a strong impression on his fellow monetary policy committee members too, persuading all of them at their July meeting to fall in behind the idea of holding off on a new round of quantitative easing, and instead issuing a firm statement warning the markets that they had got carried away in expecting interest rates to rise within the next two years.
This was an early experiment in "forward guidance" – Carney's favoured approach, tried and tested in Canada, of giving the economy a fillip by reassuring investors and consumers that they can rely on a prolonged period of rock-bottom borrowing costs.
Convincing his colleagues to go along with him – and the two committed doves, Paul Fisher and David Miles, to withdraw their long-held support for more quantitative easing – is unlikely to have been easy, but it was clear from the minutes of the meeting that they had essentially signed up to a holding position, leaving the big decisions for August.
This week's meeting is likely to yield a similar unanimous result; but a few days later, on 7 August, as he presides over his first quarterly inflation report press conference, the new boy is due to announce whether, and how, the Bank will use forward guidance to try and put a rocket under the recovery. So presumably by the time this week's meeting is over the MPC will, if Carney gets his way, have signed up to a new approach to monetary policy.
Economists are divided about the effectiveness of forward guidance, and much will depend on what thresholds the MPC sets – it could pledge not to push up interest rates, or reverse QE, until unemployment drops to a certain level, for example, or until nominal GDP, which excludes the effects of inflation, is growing at a healthy clip.
Forward guidance is more like a communications strategy than a panacea for a broken economy, but it could be useful a time when financial markets may be reassessing the outlook for the economy, and their expectations about the pace of rate rises.
There have also rightly been growing concerns in recent months, expressed eloquently by the Bank of International Settlements in its annual report, that QE is losing its effectiveness – or rather, that the risks of distorting world markets with cut-price cash are outweighing the benefits of a temporary boost to demand.
It was encouraging, then, that July's MPC minutes talked of a "mixed strategy" for stimulating the economy. The unorthodox funding for lending scheme has arguably had more impact on ordinary borrowers over the past 12 months than the tail-end of the £375bn QE programme.
With the banking system still not functioning properly, a less purist, more fleet-of-foot Bank than Sir Mervyn King's should be ready for more unconventional policies, perhaps aimed at the small businesses that have benefited little from the flood of cheap money from Threadneedle Street over the past four years. If it does decide on a fresh bout of QE, it could also co-operate with the Treasury to find better uses for the money than gorging on government bonds.
Carney will face scepticism – some MPC members are starting to fret about the risks of unleashing inflation – but there is little sign as yet of wages starting to pick up. He should ignore the doubters, and use every trick in the Bank's book to put rocket boosters under the recovery.
Frisbee remarks come back to haunt Haldane
Almost a year has passed since the Bank of England's big-brained Andy Haldane delivered his famous lines about dogs and Frisbees. The career entral banker was expressing concerns about the complex new capital rules being brought in by international regulators in Basel and advocating a simpler measure: the leverage ratio.
Haldane said: "To ask today's regulators to save us from tomorrow's crisis using yesterday's toolbox is to ask a border collie to catch a Frisbee by first applying Newton's law of gravity."
Basel is setting the leverage ratio at 3% by 2019 – in a bid to prevent bank failures. Last month it emerged that Barclays and Nationwide were the only two UK financial firms that are not currently at the 3% benchmark and the Bank of England demanded action.
Nationwide was eventually given until the end of 2015 to reach this threshold – seen as something of a letoff – and the outcome of the talks with Barclays will be known on Tuesday. While the City will moan that Barclays is being treated unfairly if it is given an earlier deadline than Nationwide, if the Bank of England does give Barclays that long to achieve the threshold, it will face accusations that the whole leverage-ratio episode is a farce. Barclays was already factoring in a 3% leverage ratio by 2015, so only an earlier deadline will demonstrate that the new banking regulator is getting tough. Haldane, for one, seems likely to be determined to strike a hard bargain.
But what about his new boss Mark Carney, whom the bankers hope will see the leverage ratio more as a regulatory backstop than a first step in assessing the risks run by banks? Carney has already started to help the government by discussing forward guidance on monetary policy. Could he be ready to help ministers worried about economic growth by relaxing the leverage ratio requirement and potentially unleashing bank lending to generate economic growth?
Passing over Haldane as the next deputy governor in favour of career civil servant Sir Jon Cunliffe – currently our man in Brussels – might be seen as a sign that Carney is ready to sign a new pact with the banks. We will know in the next 48 hours. It would be a shame if he is.
Plain English at Anglo
This is the kind of talk to be welcomed from incoming chief executives. "We have got to get our arses into gear and start making a difference," Mark Cutifani declared as he presented his first set of financial results as the new boss of Anglo American last week.
Such plain talking by the Australian-born mining expert shows he intends to get down to business. Imagine M&S boss Marc Bolland using such straightforward language, instead of grinding on about "micro-spacing" (putting products on shelves) and "in-store navigation" (layout and signs). Or what about Antony Jenkins, when he was promoted to chief executive at Barclays in the wake of last year's Libor crisis and immediately spouted about making Barclays the "go to" bank through his "transform" (Turnaround, Return Acceptable Numbers and Sustain Forward Momentum) programme.
It must be so much easier for Anglo American's staff to understand exactly what is required.