Bestinvest CIO: Carney’s monetary policy could undermine recovery

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BoE Governor Carney: “Misguided”

Bestinvest chief investment officer Gareth Lewis is concerned that Bank of England Governor Mark Carney monetary policy radicalism is misguided.

Lewis’s comments follow Carney’s recent press conference where the BoE gave forward guidance for the first time. Carney revealed that monetary policy would remain unchanged, with rates remaining at their historic low, until unemployment fell to 7 per cent.

Lewis has criticised the linking to a targeted unemployment level. He says: “We think this single mindedness will eventually prove misguided. In our view the new Governor is putting too much faith in monetary radicalism.

”Linking the direction and level of future UK interest rates to a clearly stated unemployment target and opening up the BoE own models to public scrutiny should create greater certainty about long term borrowing costs.  

“However, by ignoring key aspects of the UK’s current economic situation and placing such emphasis upon just one of the available policy options, Carney’s commitment to monetary policy radicalism runs the risk of undermining the very recovery it is designed to promote.”

Lewis is also concerned that Carney’s policy for the UK economy is too similar to the policy he adopted during his time at the Central Bank of Canada during the 2008 financial crisis. 

Lewis says: “Unfortunately, here in the UK the banking sector is inadequately capitalised and the household sector remains highly indebted.

“It is therefore our belief that the nature of this peculiarly British recovery may in turn hamper Carney’s ability to deliver against his longer term interest rate commitment.”

Others have also raised criticism of the caveats and criteria in Carney’s forward guidance announcement. Fidelity Worldwide Investments investment director Tom Stevenson recently said: “It is forward guidance with some pretty big ifs. And to an extent that undermines the whole point of the exercise, which is to create certainty. There are still plenty of unknowns.”