Mark Carney isn’t the problem. The problem was austerity

The Bank is an easy target for MPs unhappy with Britain’s prospects, but when even William Hague bemoans inequality, it’s clear where the fault lies

Next year promises a return to low growth, rising inflation and painful decisions about what to buy in the weekly shop as disposable incomes are squeezed. Not since 2012 will the British have felt the strictures that come with a faltering economy – should the forecasts come to pass.

In previous decades the public might reasonably have asked the government how it planned to rectify the situation. Not now. And not since 2010, when George Osborne effectively handed over the job of managing the economy and keeping growth healthy to the Bank of England.

So it should come as no surprise to Mark Carney, the Bank’s governor, that he faces some stiff questions about the success of his policies and what he plans to do next.

On Tuesday, members of the Lords economic affairs committee will be the latest to demand that he explain when the extraordinary measures adopted at the time of the 2008 financial crash – and since – will be scaled back and normal service resumed. Eight years after the City’s finest were put back on their feet, and three years into a solid recovery, the economy must be able to thrive without Threadneedle Street’s helping hand.

Until the past few weeks, any criticism of the Bank’s formula for recovery – printing vast amounts of electronic money and cutting interest rates to a record low – was met with the united backing of ministers, opposition parties and all but a handful of Tory backbenchers.

Everyone in government knows the Bank’s cut in the base rate to 0.5% in the aftermath of the crash and injection of £375bn into the financial system to reduce borrowing costs is what allowed Osborne to apply a tourniquet to public spending. Without access to artificially low mortgage and loan rates from high street banks, middle-income families would almost certainly have revolted against austerity.

The Brexit vote and the prospect of economic hardship next year have wrecked that consensus. Tories are concerned that a public backlash could wreck any prospect of a coherent plan for leaving the EU (a plan that remains as devoid of structure as the blank canvases offered up as art in the 1960s by the American Robert Rauschenberg). If they needed a sign of the public’s rumbling unease, the Witney byelection, where the Tory majority was cut by four-fifths, offered a constellation of warning lights.

Michael Gove, who compared Carney to an unimpeachable, god-like Chinese emperor from the Ming dynasty, joined a list of senior Tory politicians questioning the Bank’s elevated status. The list includes former foreign secretary William Hague, Brexit ministers David Davis and Liam Fox and, famously in her first conference speech as leader, Theresa May.

In many ways the Bank of England presents an easy target after more than five years of missed forecasts for inflation, wages and interest rates. Each year since the financial crash, the Bank has predicted that wages are about to rocket, pushing inflation higher and bringing forward the need for higher interest rates. Each year, there have been reasons to downgrade all three.

Carney followed this saga with dire warnings in the summer of a “technical recession” following a vote to quit the EU. He made good on his warnings after the Leavers secured their victory by tearing up the Bank’s forecasts yet again, pushing interest rates down to 0.25%, and injecting another £60bn to the total stimulus package.

Hague was especially scathing about Carney’s tactics in an article for the Daily Telegraph, emphasising that pension funds were being crushed by low interest rates. Meanwhile, he argued, the stimulus programme had increased inequality by pushing up property and stock market prices, which benefited the better off.

Anyone in Threadneedle Street could be forgiven for choking on the irony of a senior politician from the last government standing up for the young and the poor.

It’s true that on the official measures, people in the bottom 10% income group were protected from the worst of the financial crash by index-linked benefits. Yet this statistic ignores the machete ministers wielded as they cut services relied on by the poorest.

More importantly in terms of the Bank of England’s broader remit to maintain growth and low unemployment along with low inflation, Osborne’s restrictions on public investment limited the impact of the state in pushing growth above its long-term trend for more than a year before it petered out.

Carney has made plain his opposition to the monetary policy committee being the only institution to care whether the economy flourishes. Ministers’ only objective is to keep taxes low. The consequences are something for the Bank to deal with.

In a post-referendum period, when the Bank is obviously finding it hard to do much more than keep the economy from slipping backwards, should the government allow its supporters to turn their fire on the Bank – or would a more honest approach be to conclude that austerity was misguided and needs to be reversed?

The public finances are not as strong as Philip Hammond would like ahead of his first budget. Still, he would be doing us all, and the Bank, a favour if he tore up Osborne’s penny-pinching legacy and joined team Carney.


Phillip Inman

The GuardianTramp

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