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Mark Carney: Bank of England will not take policy instructions from politicians

Governor was speaking a week after Theresa May took a swipe at Banks impact on ordinary people The Bank of England governor, Mark Carney, talks to members of the public in Birmingham on 14 October. Photograph: WPA/Getty Images TheBank of En
Governor was speaking a week after Theresa May took a swipe at Bank’s impact on ‘ordinary’ people
 
Mark Carney
 The Bank of England governor, Mark Carney, talks to members of the public in Birmingham on 14 October. Photograph: WPA/Getty Images
 
The Bank of England will not take instructions on its policies from politicians, its governor, Mark Carney, has said, just a week after Theresa May took a swipe at the impact of the Bank’s actions on “ordinary” people. Speaking at Birmingham town hall as part of the Bank’s Future Forum event on Friday, Carney said it became difficult for the Bank when politicians commented on its policies rather than its objectives.
 
He said politicians had done a “good job” of setting up the system in which the Bank operates, but added: “We are not going to take instruction on our policies from the political side.”
 
May hit out at the Bank during the Tory party conference last week. She said it was the rich who benefited from the Bank printing money and cutting interest rates in the years after the 2008 financial crash, while “ordinary, working class people” were asked to make sacrifices in terms of stagnating pay, job insecurity and unaffordable housing.
 
The Bank took the decision in August to cut interest rates from 0.5% to 0.25% and fire up the printing presses for more quantitative easing in a bid to ward off recession following the Brexit vote. At Friday’s meeting in Birmingham, Carney hinted that the Bank will let inflation overshoot its target – meaning rising prices for households – by keeping interest rates low. With the weak pound pushing up import costs, Carney said people should expect an impact on living standards as higher costs are passed on. This week the effect on import costs sparked a row over the price of Marmite between its makers Unilever and supermarket Tesco.
 
 
His comments underscore the balancing act the Bank will face over the coming months as the pound’s fall and low interest rates push up inflation while uncertainty brought by the Brexit vote threatens to knock economic growth and employment. The Bank cut interest rates to a record low of 0.25% in August and has signalled it could cut again to around 0.1% by the end of this year.Speaking as the pound came under further pressure against other currencies on worries over the UK’s economic outlook, Carney also said the central bank was “not indifferent” to the level of sterling, but did not target the exchange rate.
 
Speaking during a day of events across the Midlands to explain the Bank’s roleand to canvas views from the public, Carney said that for those on the lowest incomes, “it is going to get more difficult as we move from no inflation to some inflation”.
 
The Bank has been set a target of inflation at 2% by the government, but the rate is widely expected to exceed that during the next two years, as it rises sharply from a relatively low 0.6% in August, the latest available official figure.
 
Carney used an event in Birmingham to explain that the Bank’s policymakers had living standards in mind when they cut borrowing costs in August. Without that action to shore up post-referendum confidence, the toll on jobs would have been much higher, the governor said. 
 
“We took a decision that it was better not to have another 400,000 or 500,000 people unemployed in order to get inflation right back to target at exactly two years. That was a trade-off that we took,” he said.
 
He acknowledged that the Bank’s main objective was the 2% inflation target, but that it had some flexibility over the time it hit the target. Earlier in the day, he said the Bank was willing to allow inflation to run “a bit” higher than its target to help employment and allow the economy to grow.
 
But later, in comments broadcast by the BBC, Carney said the economy had performed a little better than the Bank had anticipated and that the Bank would also be weighing price pressures when its monetary policy committee met in November to set rates.
 
“The economy is performing a little better than expected, albeit it is slow relative to the rate it had prior to the referendum,” Carney said. “We have to take into account inflation considerations, so we’ll take that into account.”
 
Separately, MPC member Kristin Forbes said inflation could sharply overshoot its target after the Bank’s rate cut and expansion to its electronic money printing programme, known as quantitative easing. “All in all, partly due to this package, partly due to the underlying momentum in the economy, partly due to other changes in the economy, it does look like the days of inflation bouncing around zero are long gone,” Forbes told a conference in Poland, according to news service Reuters.
 
“Inflation is already picking up. It will pick up even faster and we are likely to overshoot our 2% inflation target, perhaps sharply in the next two years.”
 
 
Those moves further strained nerves on financial markets after a tumultuous fortnight for the pound. The UK currency recently hit fresh 31-year lows against the dollar, hurt by worries over a potential hard Brexit deal that erodes the UK’s economic standing. On Friday, the pound was below $1.22, and was also lower against the euro, at just below €1.11. On the night of the referendum, £1 was worth $1.49 and €1.31 respectively.Their comments came as growing worries over rising inflation in the UK prompted investors to offload UK government bonds. That pushed yields on 10-year government bonds, which move inversely to prices, to their highest levels since the referendum in June.
 
Speaking about the pound in Birmingham, Carney said: “We don’t target the exchange rate … But the exchange rate does matter for inflation. Changes in the exchange rate do have an impact on inflation over a period of time.
 
“So we are not indifferent to the level. We are not going to target the level. We are not going to have some magic number for it. But it does factor into our thinking as we are striking that right balance in a period of adjustment.”
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