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Mark Carney

Mark Carney’s governorship of the Bank of England has been troubled since before it began.  Parliament wanted him to sign an eight-year contract.  He insisted on a five year term only.  This was not a good portent.  Each of his four immediate predecessors had served for ten years each in the post, and MPs and peers were looking for their successor to provide the same continuity and stability, which was all the more badly needed in the aftermath of a financial smash.  It is no secret that Carney has political ambitions in Canada, and that five year term looked consistent with him flying in, providing a relatively quick monetary fix (or something that looked like it) and then flying back out again.

There are other reasons why some will wish him gone, now that he himself has raised the prospect of depature.  (“Like everyone, I have personal circumstances which I have to manage,” he told a Lords committee last week.)  Carney was George Osborne’s man, which is enough to damn him in the eyes of many – so much so, some Brexiteers argue, that he was in clear breach of the Bank’s neutrality obligations before and during the EU referendum campaign.

Furthermore, the Governor is associated with a policy of vigorous quantitive easing, which has undoubtedly got out of hand worldwide.  Our own ConservativeHome Manifesto inveighed against financial repression – “the name given to policies that are designed to suppress interest rates and encourage inflation”, as we wrote.  Carney is an agent of it.  We are not alone in having our doubts about the policy.  Theresa May complained both in her Party Conference speech and in her leadership manifesto launch of some of its effects: “People with assets have got richer,” she said in Birmingham. “People without them have suffered. People with mortgages have found their debts cheaper. People with savings have found themselves poorer.”

The Governor hit back, saying afterwards that “we are not going to take instruction on our policies from the political side”.  It is true that he drew a distinction between “political comments on our objectives”, which he said are fair game, and “political comments on our policies”, which he said are not.  But this is arguably a gloss too far.  Carney was close to claiming that the Bank’s operations should be beyond criticism from politicians – and, by extension, from anyone else.  But it must ultimately be accountable to voters, and that is only possible through Parliament.

It rather looks as though the Governor wants out, now that Osborne himself has gone.  None the less, there is reason to pause before handing Carney a one-way ticket to Ottowa and waving him goodbye at the airport.  It is not necessarily in the public interest for the Government and the Governor always to see eye to eye.  True, their close co-operation can sometimes be a force for good.  Many of our readers will remember the “Ken and Eddie Show” – that’s to say, the easy relationship between Ken Clarke, when he was Chancellor, and Eddie George, then Governor.  But more often it is essential to have a bit of grit in the oyster.  It would have done no harm to have a more questioning relationship between Bank and Government during the run-up to the crash.

It would also scarcely be fair to blame Carney for quantitative easing per se.  The policy was well under way before his appointment in 2012.  And distinction should be drawn between reliance on the policy now and its use in the aftermath of 2008.  Without some means of injecting liquidity into the economy, the Great Recession would have been even greater: indeed, it would have risked becoming the Great Slump.  Inflation is now rising again, but it hasn’t soared during the past five years, as some predicted it would.

The Governor will decide his own future, but our view of it should be folded into the view we take of everything else – namely, that Brexit has changed everything.  The priority for policy in all areas must now be to make leaving the EU a success, and sustaining an Open Britain.  For example, there is a strong case for diversifying our airport provision.  But business, on balance, wants Heathrow expansion, so a third runway there should be.  Were circumstances different, the Chancellor’s priority would be to continue reducing the structural deficit.  But he must now do so more slowly to maintain the flexibility that the economy will need as 2019 approaches.

Or again, an industrial strategy alone the lines sketched out by May in her 2013 speech to ConservativeHome would, on the whole, be of benefit.  But it is vital to maintain economic confidence, and even yoking the words “industry” and “strategy” together is enough to frighten businesses’ horses.  The only real qualification to the rule is that the referendum delivered a clear message to Westminster that immigration must come down.  But if Carney staying on would help to keep business happy, then he should cancel any cab that he has booked to the airport.

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