Carney Cool on Recovery

After the recent fanfare following the Autumn Statement ,Governor of the BOE Mark Carney has been careful to cool some of the ardour regarding the pace of recovery in the UK economy.With positive growth on both sides of the Atlantic most analysts are predicting interest rate rises in the anglo saxon economies.Carney has been quick to add some circuit breakers and yesterday at his speech at the Economic Club in New York he said  his forward-guidance policy at the U.K. central bank has been “effective” in holding down short-term rates and bolstering the economy.He went to say “the historic relationship between monetary policy and purchasing managers indices and other indicators of forward demand would suggest that rates would have been increased already in the U.K.,” Carney said. “That’s what we were trying to guard against, which would have been in our view a premature withdrawal of stimulus.”

The guidance policy was introduced in August as an assurance that interest rates would not rise prematurely and stifle the nascent growth in the economy.The trouble is with ever frequent talk of Fed Tapering and the rabid rise in the house price index the danger of the recovery being stalled by interest rate rises or credit bubbles being burst is ever present.Carney took action last month to head off a potential housing bubble by diluting a credit-boosting program. The measure will help the central bank keep monetary policy loose for longer to ensure the recovery is maintained, Carney said. Mortgage approvals rose to the highest in almost six years in October, BOE data show, while measures of house-price growth have also strengthened this year.Carney could not resist a touch of seasonal cheer when he warned that “the Ghost of Christmas Past should not be forgotten” as high leverage and weak demand for exports means that the economy is still a long way off from normality.Until these factors are addressed one would not bet against Carney holding to his word and persisting with low rates for the forseeable future.

About Hetal Patel - Chief Editor, Europe

Hetal Patel has written 58 post in this blog.

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