Being the new boy is never much fun. Mark Carney, the new Bank of England governor, is probably experiencing a mixture of nervous excitement and some apprehension as the reality of taking on the top job at the Bank sinks in.
Will he have an induction day? Will he get a true City welcome and be treated to a boozy lunch after he chairs his first rate-setting meeting?
Assuming that booze-fuelled lunches aren’t the norm at the Bank of England, once Mr Carney locates the coffee machine and figures out how the entry pass system works he needs to get down to business.
Maybe outgoing governor Mervyn King will pass down the advice that he received from his predecessor, Eddie George, which was along the lines of: “Make a long list of everything you think you’ll have to do as governor, then delegate it all – because the unanticipated things that crop up will use up all the time you have.”
This was definitely true for King who - had to cope with a failing financial system during the 2008 credit crunch and then orchestrate unconventional monetary policy in the form of quantitative easing from 2009 onwards. His predecessor Eddie George didn’t have a much smoother time of it. The collapse of Barings Bank and the move to independence both happened on George’s watch.
Of course, the financial world’s changed a fair bit in the last 10 years, and many of the old rules no longer apply. So to help the new governor get off to a good start here are the three things Carney should do as soon as possible to make his time at the Bank a success.
1. Get the Bank behind him
First and foremost Carney needs to win the trust of his fellow Monetary Policy Members (MPC). The new governor is coming into a very different culture at the Bank of England compared to the Bank of Canada.
At the BOC he had a deciding vote on policy as the governor. Not so in England. Mervyn King knows this all too well, even at his final meeting the majority of the MPC did not vote with him.
Carney may find this set-up frustrating; he may even be affronted by being out-voted. One hopes he had prepared for this before he boarded the plane from Canada, because the UK can’t afford to have a governor always on the defensive.
Governor Carney needs to listen to his fellow Committee members and find out why they have voted the way they have and then try to weave a unified policy path for the future. Perhaps those beers are a good idea, after all.
2. Pay attention to America
Our second piece of advice for Carney is to watch events in the US closely. The Federal Reserve is planning its exit from quantitative easing, which has caused havoc in the markets so far.
How the Fed turns off the money taps without causing an economic downturn or causing borrowing costs to rise sharply, could be the template Britain eventually uses when it is ready to shrink its balance sheet.
Fed chairman Ben Bernanke is coming to the end of his term as governor, however Carney is at the start of his term in office, so his success or failure in the role could be determined by how the manages the Bank of England’s own exit from quantitative easing in the coming years.
3. Ignore the politicians
Our final piece of advice for Carney is to forget about politics. He will be governor during the next general election. While we all hope that growth will have picked up by 2015, the worst thing that the Bank of England could do is to cave into political pressure at the risk of jeopardising the Bank’s independence.
With a national debt-to-GDP ratio that is expected to continue growing in the coming years, the Bank must keep its independence at all costs: If it doesn’t Britain could be accused of monetising the country’s debts – that is to say printing new money solely to pay off existing debts.
If the markets believe that, it could mean no one will trust Britain to make good on its borrowing, seeing costs skyrocket and the spectre of a Greek-style collapse loom large.
Carney is a well-respected global figure and he arrives at the Bank of England with a fine reputation. Working his way through the minefield that is UK central bank policy making will be a challenge, we hope that he is up for it.
Kathleen Brooks is author of Kathleen Brooks on Forex, published by Harriman House.
- Budget, Tax & Economy
- Mark Carney