New Bank of England boss hints he will tear up rule book to get the economy movingCanadian Mark Carney suggests inflation target could be ditched to focus on unemploymentGood news for mortgage holders as new Bank governor hints at low rates for years to comeHe will replace Sir Mervyn King in June next year
13:48 GMT, 12 December 2012
Mark Carney, the new Bank of England governor, said it might be necessary to abandon the inflation target to prioritise growth
The Canadian who will take over the Bank of England has suggested he will be more aggressive in trying to get the British economy moving.
Mark Carney hinted that he thought boosting growth is more important than keeping inflation under control.
Instead central banks must take more radical measures to encourage business to expand and bring down unemployment.
The move would be welcomed by mortgage owners who would expect record low interest rates to last for a long time.
The Bank of England currently has a target that inflation – the annual rise in prices – should be 2 per cent.
Mr Carney, who replaces Sir Mervyn King next June, used a speech to suggest central banks should instead target keeping interest rates low to reduce jobless figures.
He said ‘precise numerical thresholds’ for unemployment could be used as a target instead.
‘If yet further stimulus were required, the policy framework itself would likely have to be changed,’ said Mr Carney, who is currently governor of the Bank of Canada.
He later stressed that he was talking about Canadian policy, but the remarks will be seen as a sign that he will take a tougher approach when he moves to Threadneedle Street next year.
Chancellor George Osborne hailed Mr Carney as 'the outstanding central banker of his generation'
The UK economy has been stagnant for two years, with forecasts suggesting it will shrink by 0.1 per cent this year and grow by only 0.8 per cent next year.
After being given the job by George Osborne, Mr Carney said he was going ‘where the challenges are greatest’.
Mr Osborne hailed Mr Carney as 'the outstanding central banker of his generation' who would bring the 'strong leadership and external experience the Bank needs'.
In a speech last night to the Chartered Financial
Analyst Society in Toronto, Mr Carney said central banks had to take
togher action during major economic slumps.
said: ‘To achieve a better path for the economy over time, a central
bank may need to commit credibly to maintaining highly accommodative
policy even after the economy and, potentially, inflation picks up.
“tie its hands”, a central bank could publicly announce precise
numerical thresholds for inflation and unemployment that must be met
before reducing stimulus.
Sir Mervyn King will stand down as Bank of England governor next June
‘If yet further stimulus were required, the policy framework itself would likely have to be changed. For example, adopting a nominal GDP level target could in many respects be more powerful than employing thresholds under flexible inflation targeting.”
It would mark a major shift from the policy of Sir Mervyn who has refused to drop the inflation target of two per cent which was set by the Labour government in 1997.