BOE's Carney May Announce Decision To Step Down This Week

In November 2012, the central bank-watching world was rocked when instead of Paul Tucker, a three decade veteran at the Bank of England replacing outgoing governor Mervyn King as many expected, the new head of the central bank was revealed to be former Goldmanite Mark Carney, something we had anticipated previously despite realizing that the optics of Goldman dominating European politics and finance, left quite a bit to be desired.

 

However, four years later, in the aftermath of the Brexit revolution that has swept from power virtually everyone that was part of the political group that onboarded Carney in 2012, Carney may be calling it a day. According to several British newspaper, such as The Times and Mail Online, Mark Carney’s "self-imposed deadline" for declaring whether he will stay in office beyond 2018 is fast approaching, and the central banker may decide to step down as soon as next week.

Cited by Bloomberg, the 51-year old Canadian may announce his decision "within days" at his next scheduled public appearance on Thursday, when the BOE announces its policy decision and the governor holds a press conference in London. The BOE did not have an official statement, and instead referred to a previous statement that Carney would make his decision public by the end of this year.

During his testimony at the House of Lords this week, Carney hinted that he may soon depart the top BOE post: "I don’t want to bind … (pause) … the Bank of England two years’ hence."

As for next steps, he may return to his native Canada for family reasons, the newspapers reported.  

"Like everyone, I have personal circumstances which I have to manage," Carney said during the testimony. "This is a role that requires total attention, devotion and I intend to give it for as long as I can."

The BOE governor has been criticized for his negative outlook on the consequences of Brexit. PM May, former Foreign Secretary William Hague and former Justice Secretary Michael Gove have made comments in recent weeks that undermine the central bank’s independence - at least according to Bloomberg - impacting the local currency and recently pushing sterling to multi-decade lows.

Ironically, even though the BOE held an emergency televised press conference a day after the Brexit vote, pledging an extra 250 billion pounds of support for the financial system, since then, various economic indicators have shown the U.K. economy remains resilient, with UK GDP printing a much better than expected 0.5% for the third quarter. Carney’s critics have accused him of trying to reverse the referendum’s decision through gloomy economic predictions.

Here is Tory politician Rees-Mogg suggesting earlier this month that Carney isn’t fit for office: "On every occasion he wants to talk down the economy and find doom and gloom, which doesn’t seem to me to be the job of the governor of the Bank of England. He never seems to want to recognize the result of the referendum and get on with it. It looks like he is a sore loser."

To be sure, it may be just a case of delayed manifestations. As the following Bloomberg chart reveals, according to official forecasts (which these days are best known for being wrong), the UK is facing a dramatic risk of stagflation in the coming years.

Somewhat ironically, as Bloomberg's Mark Gilbert writes, "assaults on [Carney's] independence are contributing to the pound’s persistent weakness and the accompanying rise in U.K. government bond yields. Asked what would happen if central-bank independence was subverted, Carney said “if it were to be called into question, one would expect to see a risk premium for U.K. assets.” And asked subsequently if he’s seeing anxiety in financial markets, he said “markets have taken note of the comments.”

The irony, of course, is that "persistent weakness" in one's currency is precisely what central bankers have been trying to achieve throughout the current period of extraordinary monetary policy, as such recent events involving Carney may be perceived as an unmitigated success.

Carney's depsture is not set in stone: As Bloomberg News' Svenja O’Donnell reported on Wednesday, the prime minister’s office sought to reassure Carney that her criticism of the “bad side effects” of monetary policy in a speech earlier this month was clumsy, and that she wants him to remain.

Although it may be too late. As Gilbert concludes:

When Carney took over at the Bank of England in 2013, Avery Shenfeld, the chief economist of Canadian Imperial Bank of Commerce, described him to me as the Ringo Starr of central banking: “He may not be the best drummer in the world, but he’s joining the best band.” Back then, the economy was humming at a sufficient pace for Carney to warn in June 2014 that interest rates might have to rise.

Of course, that whole "rate hike" fear did not last too long, and now that things have gone south may be the perfect time for Carney to move on: just as every aspect of the (un)conventional central banker toolkit has been confirmed to be a failure, and a thoroughly new approach to monetary policy is needed.

Who knows, perhaps the BOE - with little to lose - will be the first modern central bank to retain an "Austrian" governor, although we won't be holding our breath.

As for Carney, should he indeed announce his depart this week with the UK in far worse shape than how he found it, we are confident Goldman Sachs will be happy to open one extra executive chairman position just for him on very short notice.

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