The Saturday Economist : Mark Carney revealed as the next Governor : 1st November

The Saturday Economist 1st November 2012

Economics news, surprise news as Mark Carney is revealed as the next Governor of the Bank of England. Young, slim, intelligent, charming, suave, well dressed, experienced, the “quintessential leader” and an “example to others who aspire to leadership”. The accolades roll on.

The appointment was met with universal praise from both sides of the house when the announcement was made – Carney will leave the top job at the Bank of Canada to become Governor of the Bank of England.

“He is quite simply the best, most experienced and most qualified person in the whole world to do the job” gushed the Chancellor. We always get our man – no longer the sole mantra of the Royal Canadian Mounted Police. Osborne had to chase his man for almost a year, up the pay and drop the term in office to meet the “Any F****r but Tucker” mandate at Treasury HQ on Horse Guards Parade.

So where is Canada anyway? I mean just where is it along the road to recovery? Inflation is lower, growth is higher and the Canadian dollar has been rising in value as Sterling moved in the other direction. Let’s hope this is a signal of change in policy to come for the currency. No more depreciation please, Governor Carney. Check out our charts here!

The new Governor has an exemplary academic record ex Harvard with a Masters and PhD from Oxford. A classic background in economics, thirteen years with Goldman Sachs, followed by a gilded term at the Canadian Central Bank. What more could we ask?

Experience of International Bank Regulation? Yes – two years as Chairman of the Financial Stability Board comes as a bonus. Carney is a Financial Dr Dolittle who talks to the banking animals in a language they understand. He is quite prepared to shout and shake his fist when required as Jamie Dimon at JP Morgan can attest.

So what should we make of it? Carney is a great appointment. It is time for a re think at the Bank of England. A pity we have to wait until June next year to see him in action.

GDP second estimate

No surprises in the revision to the Q3 GDP figures. Growth was confirmed at plus 1% in the quarter with some minor adjustments to manufacturing and construction output. Output growth is reliant on government spending with some support from the service sector. Manufacturing is down (-0.9%) along with Construction (-10.9%).

In spending terms, government spending leads (2.4%) with some growth in household spending (0.9%). Investment is flat, exports grew by 2% as imports increased by 2.5%. So much for the net trade miracle  The underlying policy to rebalance the economy is seriously off track. It was never going to work.

Next week the Autumn statement is revealed. We shall have to wait and see just what other Carneys can be pulled from the carnage. Should be an interesting presentation by the Chancellor. Plus how will the OBR treat the handbag snatch of the Governor’s gilt coupons? Can’t wait!
In other news
In other news, house prices are flat or falling, consumer borrowing growth is static, not growing, mortgage markets are not moving. The economy is becalmed awaiting the gusts of expansion that only real income growth in the household sector can provide.

So what can we do? Top tax rates lower, NI reductions, VAT relief on energy and utility costs a possible step in the right direction. Welfare cuts appeal to deficit hawks but the reality is this would lead to a radical reduction in domestic demand in the short term. A step in the wrong direction on Planet ZIRP. Let’s see what the Chancellor has up his sleeve. It will be an interesting week ahead.

Inflation Watch
Oil prices closed at $111 per barrel compared to an average $109 in November and December last year. No real inflation pressure in the short term, so we expect prices to ease back below 2.5% over the quarter.

Markets Update – Dow hits 13,000. 
Markets rallied further this week. The FTSE closed up 5819 up 70 points, the Dow closed up 13009 from 12788 and in Europe the Dax closed at 7309 from 7176. UK ten year gilt yields closed at 1.79 from 1.85 and US rates closed at 1.61 from 1.69.

In currencies, the dollar closed up against the Euro at 1.30, Sterling closed up slightly against the Euro at 1.25. The Sterling Dollar rate closed level at 1.60.

That’s all for this week, don’t miss The Sunday Times and Croissants out tomorrow.
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