London: Bank of England (BoE) governor Mervyn King has urged successor Mark Carney not to bring to Britain his trademark policy of spelling out how long interest rates will remain low.
King also said the bank could not be run as ‘a one-man show’, a sign of concern at high expectations that the arrival of the Canadian will lead to a quick fix for Britain’s slow economy.
In an interview with Sky News television broadcast on Sunday, King praised Carney, saying Britain was fortunate to have him. “I think everyone will admire what he will achieve,” he said before sending a message to his successor. “He will work with the rest of the Monetary Policy Committee. It’s not a one-man show. There is a very strong team of people here in the Bank of England which I have built up over 20 years.”
King, who steps down at the end of June, said he was confident the bank under Carney would make the right judgements but he stressed his opposition to one of the changes that the Canadian is expected to make — signalling how long interest rates will remain low.
“What none of us can know of course, is what the right decisions will be down the road,” King said. “They will have to made month-by-month, according to how the economy develops, and I am sure that they will make the right decision.”
Carney was chosen as the next BoE governor last year by Chancellor of the Exchequer George Osborne, who hailed the former Goldman Sachs banker as “the outstanding central banker of his generation”.
Osborne has asked Carney to report to him on the merits of adopting a system of signals about interest rates similar to that used in the United States. There, the Federal Reserve has said interest rates will not go up unless unemployment falls or inflation expectations rise to specific levels.
Carney took what was seen as a bold step by adopting a similar policy in 2009 at the Bank of Canada, before the Fed’s move, in an attempt to persuade households and businesses that the cost of borrowing was not going to rise in the near future.
But King and other BoE policymakers have warned that ‘forward guidance’ risks undermining the credibility of a central bank if it has to change course more quickly than expected on interest rates. Getting agreement on how guidance could be used in Britain will be Carney’s first big challenge.
In the interview with Sky, King expressed concern that a flagship British government scheme to boost mortgage lending must not become permanent like in the US.
“We do not want what the United States have, which is a government-guaranteed mortgage market, and they are desperately trying to find a way out of that position,” he said.
King also said more needed to be done to nurse the British economy back to health after some recent signs of recovery.
“We will need to do more to use up the spare capacity, and to get back to a healthy, growing economy,” he said. “But we are in a recovery period now.”
King has voted for more BoE bond buying in recent months but most of the bank’s policymakers oppose the idea. He said the single biggest risk to Britain’s nascent economic recovery was the crisis in the Eurozone which was unlikely to be growing quickly “for a long while.”
Britain’s banks were on track to return to health after a series of reforms prompted by the financial crisis and which would be complete in one or two years.
“If we can get to end of this process, then we will have revolution in the way in which banking is handled and we will be able to be proud again of British banking,” he said.