Mark Carney's school report: how has the governor done in his first year?

Unveiling Jane Austen on banknotes.

Chillaxing at a music festival. Basking in the knowledge of being hand-picked as the first foreigner to govern the Bank of England. That was Mark Carney in July last year, when he arrived in London from Ottawa to take over on Threadneedle Street from the departing Mervyn King.

Carney's headlines were to die for. He was the George Clooney lookalike with a mission to give the Old Lady a makeover. He was a cool dude, the guy who had been a goaltender in Harvard's ice hockey squad and now, in London, went jogging on Hampstead Heath. The US could boast Ben Bernanke, the student of the Great Depression, and the eurozone had Mario Draghi, the man who pledged do to whatever it takes to keep the single currency in business, but Britain had Mark Carney: the rock star central banker.

Tuesday marks the anniversary of Carney's arrival at the Bank. So how is he shaping up, a year into the job? Here's how his report card looks.


Early impressions were good. George Osborne badly wanted Carney to run the Bank of England. The economy had flatlined in 2011 and 2012 and the chancellor wanted to hire somebody who could rescue what looked like the equivalent of a failing school – and fast.

Osborne said he wanted a governor to serve eight years: Carney was only prepared to do five. No problem, said Osborne. Carney said the financial package wasn't good enough. We'll improve it, said Osborne. Carney, an alumnus of Goldman Sachs, where they know plenty about dealmaking, made himself all the more attractive by playing hard to get.

The reputation and the price tag did not seem to weigh on Carney's shoulders as he quickly settled in. He scored a PR triumph by turning up at Jane Austen's house in Hampshire to announce that the author of Pride and Prejudice would grace the back of a £10 note – breaking the male dominance (the Queen excepted) on UK legal tender. In another well-received move, he appointed mandarin Sir Jon Cunliffe, one of Carney's old muckers at G7 summits, to be the Bank's deputy governor in charge of financial stability.


Carney's luck was in when he arrived. Despite Osborne's concerns, there were already signs of the economy's exam results improving in the last few months of King's stewardship.

Fears of a triple-dip recession had been banished and the Office for National Statistics had even revised away the double-dip recession in 2011-12.

For quarter after quarter, King had been forced to admit that the economy had performed less well than the Bank had been expecting, and that the recovery from the longest and deepest recession since the second world war had yet again been delayed. But finally, the measures he had taken – cutting interest rates to 0.5%, creating £375bn in new money through the quantitative easing programme, and the Funding for Lending Scheme (FLS) to encourage loans to homebuyers and small businesses – turned things around.

It was the FLS, announced in the summer of 2012, that proved decisive: it reignited the housing market. By the time Carney took over, the economy was in the early stages of a vigorous, if belated, revival. His timing was perfect.


Carney could have sat back and let things take their course. For two reasons, though, he didn't do so. The first was the risk that a recovery still in its infancy might be snuffed out by the fear of rising borrowing costs.

The second, less important, was that he was under pressure to justify his status (and £800,000-plus annual remuneration package). The big innovation arrived little more than a month after Carney's arrival in the form of "forward guidance". This was a pledge by the Bank that it had no immediate plans to raise interest rates and would only discuss doing so under certain conditions: if the unemployment rate fell below 7%; if there were a risk of an inflationary spiral; or if there were a raging house-price boom that could only be tackled by raising borrowing costs. The idea was to give consumers and businesses confidence that they could borrow free from anxiety about rate rises.

The Bank said it expected unemployment – which then stood at 7.8% – to fall only slowly, with the 7% threshold reached in early 2016. The City took this to mean that official interest rates would remain on hold for the next two and a half years.


Never the Bank's strongest subject, the failure to forecast correctly rapidly became a problem for Carney. Forward guidance worked even better than expected: growth was strong in the second half of 2013 and record numbers of jobs were created. By the end of the year it was clear the 7% threshold that was at the heart of forward guidance would be reached, not in early 2016, but in early 2014.

As a result, forward guidance mark I lasted only six months. It was replaced in February by forward guidance mark II: the message from the Bank now was that it would look at a range of indicators to assess how much spare capacity there was in the economy, rather than focusing on the unemployment rate. The rebranding of forward guidance marked the end of Carney's six-month honeymoon.


There was a time when Threadneedle Street had the air of a boys' school. When Carney's appointment was announced in late 2012, there were no women on the nine-strong monetary policy committee (MPC) and all 11 members of the fledgling financial policy committee were men.

Under Carney, the gender balance has improved. One of his early decisions was to appoint Charlotte Hogg as the Bank's chief operating officer, and over the next couple of months the number of women on the MPC will increase from nought to two: Nemat "Minouche" Shafik, hired from the International Monetary Fund to be deputy governor in charge of markets and banking, and US economist Kristin Forbes, one of the four MPC members appointed from outside the Bank.


With the Bank now responsible for financial stability and policing banks in addition to setting interest rates, Carney called in two sets of management consultants, McKinsey and Deloitte, to help with the reorganisation of Threadneedle Street.

The idea is to create a "one Bank" ethos rather than have a silo mentality. It is certainly a bigger bank: staff numbers have increased by 50% in the past year to almost 3,500 as its responsibilities have increased.


In contrast to King, Carney has rarely been out of the media spotlight. Speeches are followed by on-the-record press conferences and big decisions are explained in TV interviews. The openness has extended to the written press, which rarely – if ever – secured an audience with Carney's predecessors.

Recently, the Bank's communication strategy has been a little confused. Carney's remarks at the May inflation report were taken to mean that interest rates were not going up during 2014. Just 29 days later his speech at the Mansion House suggested otherwise. Last week he was back to downplaying the chance of early action on rates.

Carney insisted that he was being entirely consistent in his message, namely that the timing of higher borrowing costs depends on the data, and so markets should be prepared for a range of options, but the City has been left baffled. Chris Williams, chief executive of investment analysts Wealth Horizon, said: "Despite its protestations, the Bank of England has significantly overestimated the level of clarity that the market and consumers have on its strategy around interest rates." The frequency of Carney's public pronouncements – and his tendency to speak in very long, convoluted sentences – has not helped.


Carney says he has achieved six things:

■ Forcing the different parts of the Bank to talk to each other.

■ Improving the way Threadneedle Street provides help to the markets.

■ Insisting on stress tests for banks to ensure they can ride out problems.

■ Chairing the international Financial Stability Board as it seeks a way of ensuring banks are not "too big to fail".

■ Using forward guidance to delay interest rate increases that might have stalled the economic recovery.

■ Using new macroprudential tools to calm down the housing market.

Of these, finding an answer to "too big to fail" would have the biggest long-term impact. But it is the last two tasks – getting the timing of rate rises right and preventing a boom-bust in the housing market – that will be crucial to whether he is considered a success.

If the governor can silence the doubters – of which there are a growing number – he can look forward to a big job in Canadian politics after 2018.

If he gets it wrong, the rock-star banker will quickly lose his lustre. In the words of another of Canada's favourite sons, Leonard Cohen, he will be Last Year's Man.

Powered by article was written by Larry Elliott, for The Observer on Sunday 29th June 2014 00.05 Europe/London © Guardian News and Media Limited 2010


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