Brian Tora is bemused by Mark Carney’s sudden attack of pragmatism


Quite a number of phrases have crept into the lexicon of financial jargon over recent years. Sub-prime, quantitative easing, forward guidance – all are expressions that I’m sure never crossed my path until the credit crunch. Actually, come to think of it, had I heard the term “credit crunch” before? I rather doubt it.


The term “forward guidance” sounds simple enough. It suggests providing appropriate information to give those who need to make judgments on what might happen in the future a better chance of getting it right. And this was, indeed, the intention of our new Bank of England Governor, the George Clooney lookalike Mark Carney, when he announced this approach to monetary policy.

Mr Flexible

With the economy improving and unemployment coming down, Mr Carney felt it would be useful if business managers and investors could have an indication of what might trigger an interest rate rise. Except that he changed the rules. When unemployment fell to within a whisker of the level (7%) at which he had suggested a rate rise might be appropriate, he broadened the criteria and indicated that rates would remain lower for longer.

All well and good, though it does rather undermine the concept of ‘guidance’. And as it happened, the next set of jobless numbers did see a modest uptick – not enough to set alarm bells ringing, but probably sufficient to allow him to have remained schtum before.


Even so, the debate still rages over whether we will see a rate rise before the year is out – although my own money is on us staggering through to next year’s election without the cost of money going up.

What, No Interest?

Higher interest rates are, of course, a two edged sword. Borrowers are hit when money becomes dearer, but savers benefit. Those who have traditionally relied on bank and building society deposit income to supplement their meagre pensions have had a tough time of it recently. Annuities purchasers have also been short-changed, given the low level of gilt yields on which rates are fixed. Let alone the incidence of poor competition.

If one recent comment by the regulator should have warmed the hearts of IFAs, it would have been the contention that too many people buying an annuity fail to shop around and simply take what’s on offer from whoever held their pension pot. The ‘open market’ option has been with us for some time, so in many ways it is disappointing that more retirees do not take further advice on what is best for them.


What It Probably Means

For the time being, though, rates look likely to remain unexciting, so it is just as well that inflation is subdued. This has, perhaps, been the strangest outcome of all the pump-priming that western governments have undertaken in their efforts to shake off the worst influences of the credit crunch. Quantitative easing is really nothing more than printing money – and any economist will tell you that such action inevitably leads to rising inflation.

The fact that it hasn’t done that must owe much to the fears of the working man that his job might be at risk, leading to subdued wage demands. But if unemployment continues to fall, then wage inflation could still reassert itself.

No wonder Mr Carney – and the new Fed boss, Janet Yellen – lay such store in watching the jobless numbers. We should too, but wage rises will be an even more important indicator. It could prove an interesting year for statistics geeks.


Brian Tora is an associate with investment managers, JM Finn & Co

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