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Four BoE policy mountains Mark Carney will have to climb
by Isabella Nimmo on Nov 27, 2012 at 14:33
Mark Carney's appointment as the next Bank of England governor was cheered by politicians and commentators alike, but that does not mean Mervyn King's successor has an easy ride ahead.
Despite being the dark horse of the candidates, Mark Carney was yesterday named as the man who will succeed Mervyn King as the next governor of the Bank of England.
Announcing the appointment, George Osborne (pictured), said he had been tasked with finding the 'best for Britain' and in Carney he had found that.
Carney currently serves at the governor of the Bank of Canada and there is little doubt he is well-qualified, even if not a favourite to replace King.
Fittingly, Osborne described Carney as ‘quite simply the most experienced and most qualified person in the world’ when he announced the start of his tenure as Bank of England governor on 30 June. Carney holds a Doctorate in economics from Oxford University and was narrowly beaten by Christine Lagarde to become head of the International Monetary Fund.
Carney was also praised by shadow chancellor Ed Balls, who after Osborne's announcement publicly backed the Canadian to fill King's role.
Carney, a Canadian, immediately stands out in the line up of previous Bank of England governors. Many expected Paul Tucker, one of two deputy governors at the Bank, to replace King. Carney taking the reins marks the first time in the Bank's 318-year history that a foreigner has held the post.
However, regardless of who followed King, a bumpy ride was sure to follow given the challenges faced by Britain. King (pictured) hands over an institution that has become increasingly high profile and from 2013 will resume its role as regulator.
When the Financial Services Authority (FSA) dissolves, the Financial Conduct Authority (FCA) will look after the interests of consumers, while the Prudential Regulation Authority (PRA) and the Bank of England will supervise deposit takers and banks.
To many this overhaul of City regulation sees the Bank of England become one of the most powerful institutes in the world. To Carney it could present something of a challenge, as in Canada the oversight of lenders is kept apart from central banking.
Any fall out from the change in supervision in the UK will also be Carney's to handle.
Delegation of power
The decision to widen the Bank's powers might also be a hurdle, and this is one that Capital Economics' highlighted in a recent note.
Carney, like any incoming governor, will have to delegate, Capital's chief UK economist Vicky Redwood pointed out. This could lessen Carney’s ability to ‘dominate' the direction of policy as much as King has done, Redwood said.
The consultancy is not alone in holding this view; Carney’s appointment has been referred to as the start of a ‘period of significant upheaval at the Bank of England’ by Investec economist Philip Shaw, who said Carney may prove less able to easily steer through the key changes as he would wish.
How will Carney cope with QE?
Carney may have a near-perfect CV, which most importantly includes a key role in helping Canada successfully avoid the brunt of the financial crisis as well as a 13 year high-powered stint at Goldman-Sachs, but there are many challenges unique to the UK that he has to confront, notably the Bank’s decision to start quantitative easing (QE) in an attempt to beat the downturn.
QE was not necessary in Canada, where not a single bank was bailed out during the crisis. The downside of this is that Carney has no experience in handling such a risky policy. Although inflation targets have remained largely similar on both sides of the Atlantic, the sheer number of differences in monetary policy and structure could prove difficult.