|Britain is a 'crisis economy', says Mark Carney
|Mark Carney, the incoming Bank of England Governor, has described the UK as a “crisis economy” as he sought to play down hopes that he could ride to the country’s rescue.
Speaking on the fringes of the International Monetary Fund’s spring meetings in Washington, he said: “The US is breaking out of the pack of crisis economies that include the eurozone, the UK and Japan.”
His words came just days after the IMF slashed its forecasts for UK growth this year and next, and urged the Chancellor to scale back his £130bn austerity programme to aid the recovery.
Christine Lagarde, the IMF managing director, signalled that the Fund will demand the UK ease off at its annual Article IV update on the economy next month.
Asked whether she agreed with IMF chief economist Olivier Blanchard that the Chancellor was “playing with fire” with his economic plans, she said: “We have said that should growth abate then there should be consideration to adjusting by slowing the pace.
“The growth numbers are certainly not particularly good. So, in a sense, this is a continuation of the position. What has changed is clearly the quality of the numbers.”
Ms Lagarde’s comments dealt a damaging blow to the Chancellor, whose policies she has previously championed. Her support has been critical to shoring up George Osborne’s credibility in the face of Labour’s attacks.
Asked specifically about his opinion on the UK reovery, Mr Carney said he would reserve his opinion until he starts at the Bank in July. However, he added that “the flip side [of the UK’s problems] is the tremendous opportunity that is there”.
In comments that will further disappoint Mr Osborne, Mr Carney stressed that governments should not be looking to central banks to return countries to prosperity.
“Can central banks provide sustainable growth? No. They can help with the transition, but they can’t deliver long term growth. That needs to come through true fiscal adjustments and necessary structural reforms… Sustainable growth comes from the private sector.”
Mr Osborne is counting on Mr Carney being more radical than Sir Mervyn King, who has refused to consider aggressive measures such as giving the market firm guidance on future policy movements and using quantitative easing to buy assets other than gilts.
The contrasting positions of Mr Carney and Sir Mervyn, whose second five year term ends in June, were exposed by one exchange over the US Federal Reserve’s decision to set an unemployment target alongside inflation. Mr Carney defended the US stance and rejected Sir Mervyn’s argument that it could hold policymakers hostage to unachievable goals.
A separate Treasury Select Committee report on Mr Carney’s appointment said his commitment to end Sir Mervyn’s allegedly autocratic management style was welcome.
Andrew Tyrie, TSC chairman, said: “In evidence to the Committee, Mr Carney set out his preference for a consensus-based approach to leadership; this will be significant if it leads to a meaningful change of culture within the Bank.”
At the Reuters Newsmaker event in Washington, Mr Carney stressed that his influence over policy at the Bank could be overstated. “It’s an honour and responsibility [to be Governor] but it’s a responsibility that can be overplayed as these powers are vested in committees. I’m a member of these committees. Policy is not mine.”
Mr Carney also launched a withering attack on tax avoiders, acknowledging the public outcry against multinationals in the UK. He said tax policy needed global co-ordination, but added: “On a personal or corporate level, if there is a persistent ability to avoid tax that means the burden of fiscal adjustment falls on those who are paying their fair share – and they have to pay more than their fair share.”