Today the keys to the Old Lady of Threadneedle Street passed over to Mark Carney and Sir Mervyn King will bow out after 10 long years.
Between 2003 and 2013, the Bank of England saw this country’s financial sector rise so high and then fall further than ever before.
A week on from George Osborne’s Spending Review, which cut £11.5bn from public spending, there are more rumblings of uncertainty as Croatia joins the European Union with record unemployment and the possibility of yet another bailout. Further afield, there is speculation over the gradual end to quantitative easing in the US and concerns over a potential credit crisis in BRIC powerhouse China’s economy.
By any stretch of the imagination, the UK economy is not out of the woods yet.
At this critical time, Mark Carney is getting some mixed reviews. Dubbed “the outstanding banker of his generation” by George Osborne, Carney was fast tracked into the role back in November and secured a massive pay packet to sweeten his departure from his previous role as Governor of the Bank of Canada.
Expectations are high for the so called ‘banking messiah’ to get Britain’s sluggish recovery going properly.
Canada was one of the only OECD countries to avoid a major banking crisis or subsequent recession which is probably why he is one of the best paid central bankers in history.
But while he has avoided the taint of the financial crisis and the subsequent Libor scandal last year his record is not entirely unblemished. His years in the toxic environment of Goldman Sachs and speculation that the calm state of Canada’s finances may be due more to its natural energy resources, its fiscal surplus and a more tightly regulated financial sector than its monetary policy, knocked his halo eschew slightly.
Indeed, according to the New Statesman, one of the other rejected candidates for the post said Carney was competent but “no messiah”.
No one should expect him to be. As exciting as it is to have someone young and glamorous (for a banker anyway) in the Governor’s chair, the hero worship which has crept up in certain corners will only set him up for a fall.
Because he has a fight on his hands. Not only did his predecessor fail to persuade the MPC to instigate more quantitative easing to keep the economy liquid, but Barclays Bank is threatening to “restrict” loans to households and businesses (£) in protest at the Bank’s new capital rule to rein in lenders.
Add to that the warnings of the outgoing Governor King, who said the economy was “nowhere near” ready to return to higher interest rates and that it could lend to younger people with large mortgages being unable to pay.
King’s warning gets to the heart of the problems in the British economy. It is a country desperately in need of cheap credit but desperately afraid of it because of what happens when it is too abundant.
Whatever people may say about the financial sector and how the country should be ‘making things’ we need credit and the necessary hot air it comes with.
Excessive risk maybe be poisonous but so is excessive caution.
There is only so far the country can recover with monetary policy alone. What the British economy needs now is a bit of faith.
So maybe, while Britain isn’t out of the woods, Carney could boost the recovery without really meaning to. Additionally, regardless of whether the Coalition’s austerity measures are the correct way to fix the finances of the country, the news that more people are coming to terms with three years of government spending cuts could precipitate a new sense of grudging confidence in the new normal.
Although borrowing and spending are still high, public perception of how the Government is managing its finances has improved. Perhaps if they feel they are through the worse of it now, they may make those tentative steps towards booking that holiday or investing in that start up.
It may be small but it is this confidence, regulated properly by the Government and a stronger financial services regulator, which can get Britain going again rather than fearfully treading water as it has been doing for several years now.