Published on 12 Dec 2012

Carney’s recent musing on UK jobs and housing bubbles

Mark Carney is rightly in the news for giving a speech last night called “Guidance”.

It strongly supports the impact of his pre-warning of a period of low interest rates, known as the “conditional commitment”. But it also points to the logic, during a period of extended low interest rates, to a so called “nominal GDP” target. Such a target implicitly accepts higher inflation, at a time of low growth.

Firstly, I don’t think he’s the only person in the UK economic establishment at least pondering this as I wrote in September.

Second, nominal GDP targeting may more accurately reflect what the BoE has already been doing sotto voce for three years. Thirdly, I restate my surprise, made in the initial “Carney-val” euphoria, that some hardcore inflation nutters are so welcoming of an appointment, which, all things equal, will mean lower rates for longer.It seems even more relevant now.

I’ve also dug out Mr Carney’s most recent comments on the UK, made six weeks ago during parliamentary testimony in Ottawa, before he was appointed as Sir Mervyn King’s successor. The UK jobs market merits the word “unfortunately”.

“Obviously, within continental Europe, the G7 countries, and unfortunately in the U.K. as well, the pace of job creation from recession troughs has been quite slow, and the quality has been beneath that found in Canada,” he said on 30 October having referred to a large number of “involuntary part time” jobs. He pointed out that Canada’s jobs recovery had been strong, high wage and the vast majority full time. “The quality of job creation has been high,” which is clearly not what he thinks about UK (and the US and Europe).

Will today’s positive jobs numbers, including falls in overall and youth unemployment change his mind? I have my doubts. More relevantly, what chance him raising interest rates – at any time during his five year tenure – given the sluggish picture in UK, given that he did not in Canada?

Even more interestingly, from that six-week-old Canadian parliament transcript, are his support for efforts made to actively calm a housing bubble.

“Mr. Mark Carney: We have welcomed the moves the government has taken on reducing amortization, increasing down payments, effectively raising the credit scores, reducing and effectively eliminating the ability to access mortgage insurance for refinancing and for investment properties. These measures as a whole are contributing to a more sustainable development of the housing market here in Canada, and we welcome them.”

So reducing incentives for buy-to-let in Canada. Mr Carney will find a contrast when he arrives at the Old Lady, that the Bank of England/ Treasury Funding for Lending Scheme is actually being used to subsidise buy-to-let mortgages by state-owned banks.

Not just that, he strongly implies that US QE3 is designed to at least partially to weaken the US dollar. Yet, he thinks the Canadian economy will be boosted if firms “take advantage of the strong Canadian dollar to buy machinery and equipment”.

Oh, and on the euro crisis’ ultimate resolution: despite progress “it will take years”. Well worth a full read of that transcript.

Follow Faisal Islam on Twitter: @FaisalIslam

4 reader comments

  1. Philip Edwards says:


    I am tempted to say that after that old spiv Merv the Swerve even Con Carney would be an improvement. However, my tongue keeps sticking in my cheek.

    Britain is not and never will be Canada. What “works” there won’t work here except at (maybe) barrow boy level. I predict after a little foot shuffling Con will end up doing and saying the same things. But with a slight accent change. You could almost write the script….maybe you will.

    So Britain will continue to amble toward even greater economic horror. The jargon might change, there might be a little tweaking here and there, a slight fall in “structural unemployment” and an increase in profiteering housing. None of it will make any real difference, nor is it meant to. Neocon economics rely on cultural fear to maintain a dominant position, always have always will.

    In other words, I’ll take my Con Carney with a very large pinch of sea salt.

    PS Good luck with the book. I hope it is better than Robert “Greed is Good” Peston’s pile of pap.

  2. Andrew Dundas says:

    Canada is in large part a commodities play. The UK ran out of surplus commodities decades ago. So no similarity there.

    Because I’m a net borrower, I look forward to continuance of the current v low interest rate regime.

    But as a nation, that’s a sad prospect.

  3. e says:

    Guidance: a Canadian “unconventional policy tool” – complimentary to the better known nods and winks. Listen up chaps, we don’t want change to the neo-liberal business model/framework, it’s served us well, so follow the “guidance” as I endeavour to ensure our current and future riches remain safe during this tricky period which risks social and political unrest.

    The new man is offering us more of the same: onwards and downwards socially and morally – and economically for ever greater numbers among the masses.

    I hope I’m wrong.

  4. Muggwhump says:

    Notice how a few days before they signal the abandoning of the inflation target they handily cut the link between annual welfare rises and inflation?
    So as we move towards unlimited QE and massive boosts to asset prices for those at the top the people at the bottom have been cut adrift and left to go under.
    No debate or discussion about this in the media.
    No questions or opposition in parliament.
    Remember welfare isn’t people sitting around doing nothing.
    Workfare is people on £71 a week JSA working for private companies, and they are working…they’re not counted as unemployed!
    People in low paid jobs who get working tax credits are also technically on welfare as well.
    These people will all be financially eviscerated by the inflation their income is no longer related too.
    This is a deliberate policy. It will have massive implications for millions whose lives will be rendered untenable.
    The only reason I can see for them cutting the link in this way is they are not sure it will work and are worried they’ll get the inflation without the growth and be left with higher bills as a result.

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