London Briefing: Carney takes chance to get own back on MPs

Bank of England governor says politicians have to address gap between rich and poor

Mark Carney came out fighting at Westminster yesterday, as he told MPs that central banks were not to blame for the rising tide of inequality that boosted the vote for Brexit in the UK and propelled Donald Trump to power across the Atlantic.

In his latest appearance before the British parliament’s treasury select committee, the governor of the Bank of England insisted that monetary policy alone was not responsible for low interest rates and rising global inequality.

“Much more fundamental factors” were at play, he said, “and an excessive focus on monetary policy in many respects is a massive blame deflection exercise.”

Blame deflection exercises are, of course, not unknown in political circles and Carney was clearly taking the opportunity to get his own back after the avalanche of criticism that has been heaped upon him from Westminster since the June referendum.

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The causes of ultra-low interest rates went way beyond decisions made by central bankers, Carney explained.

Interest rates were low because the economy needed them to be low to boost productivity and investment.

General uncertainty

It was politicians who would have to address the structural changes needed to address the gap between rich and poor, the governor said.

Unless those changes were made, “we could be stuck in this trap, and I use that word advisedly, for decades,” Carney warned.

Although the purpose of the session was to grill the governor and other bank policymakers about the latest quarterly inflation report, British MPs were keen to question Carney on his recent decision to extend his term by a year.

Carney again denied that critical comments on monetary policy from British prime minister Theresa May at the Tory party conference had influenced his decision. And he revealed that former chancellor George Osborne had in fact urged him to stay on at the bank for an extra three years.

Committee chairman Andrew Tyrie asked the Canadian banker whether the lack of clarity over how long he planned to stay at the British central bank had added to the general uncertainty surrounding Britain's exit from the European Union.

There were “far bigger issues than my timetable,” Carney responded.

And just to provide additional clarity, the governor made it clear that, in his case, exit means exit: he will leave on June 30th, 2019 – whatever the state of the Brexit process.

Carney said he had agreed to serve an extra year on top of the five he originally signed up for, out of “a sense of responsibility”.

While he wanted to provide as much continuity as possible during the two-year article 50 process of leaving the EU, his own deadline had now been set and there would definitely be no further extension.

“There is a practical reality which is that I’ll be separated from my family for that extra period of extension,” he told MPs. Carney’s wife, Diane, and four daughters will be returning to Canada, as originally planned, in the summer of 2018.

Steep rises to come

Carney urged financial services firms not to be too hasty in formulating any plans to exit the UK in the wake of the Brexit decision.

Companies were making contingency plans, which were in “various stages of readiness and degree and specificity,” he said.

But, cautioning that it’s still “very early days”, the governor said: “Planning makes sense; action, in most cases, in general, is precipitous.”

As Carney was arriving at Westminster yesterday morning, the UK’s Office for National Statistics released the latest inflation data.

Instead of the expected rise to 1.1 per cent last month, the rate of inflation showed a surprise fall to 0.9 per cent.

But the decline is only temporary, fuelled largely by lower prices of clothing and footwear. As the weaker pound feeds through to costs, there will be steep rises to come in the months ahead, Carney told MPs.

There were a few lighter moments during the three-hour session.

When it came to the turn of Jacob Rees-Mogg to ask questions, the leading Brexiteer began with some words of thanks for the governor, rather than repeating his recent demands that Carney step down.

“I must start by thanking you, governor, for inviting me to the Bank of England Christmas party. It’s very gracious, so thank you very much”.

“’Tis the season,” said a smiling Carney.

“Well, almost,” replied Rees-Mogg, who clearly hasn’t let the invitation win him over entirely.

After a ripple of muttering and expectant looks from the rest of the committee, Carney generously extended the coveted Threadneedle Street party invite to “everyone in the room!”

If only it were as easy to fix the global economy.

Fiona Walsh is business editor of theguardian.com