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Forward guidance could boost GDP by 0.5% – Mark Carney

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  • 08/08/2013
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Forward guidance could boost GDP by 0.5% – Mark Carney
Brits could benefit from a 0.5% increase in gross domestic product as a result of forward guidance on interest rates, Mark Carney has said.

The Bank of England governor revealed the analysis in a wide-ranging interview with the BBC’s Today programme. He also called on banks to fix their balance sheets and floated the possibility of a female governor.

He said the central bank had compared models of market interest rates with maintaining the interest rate at the same level over three years and found the difference to be “considerable.”

However, he stressed policy would be guided by what happened on the ground rather than forecasts: “We are providing certainty on that because we are pointing to the employment rate as a condition – these are real jobs, real people and we can track that.”

Carney, who took over from Mervyn King in July, said he wanted to learn from the mistakes of Japan, where policy makers did not fix the banks quickly enough and pulled back economic stimulus measures too soon.

He said repairing the balance sheets of British banks would be a priority: “One of the first things I did with Paul Tucker and Andrew Bailey was to ensure our largest building society and one of our largest banks had credible plans to further boost their capital so they made minimum international standards. The plans are now in place. That is absolutely necessary.”

In June, the Prudential Regulation Authority called on Nationwide and Barclays to provide plans for fixing capital holes before the end of July.

Carney, who has spoken in support of the campaign to have women on bank notes, also admitted being personally struck by the all-male make-up of the Monetary Policy Committee. He called for female economists to be supported through the ranks of the central bank: “That adds to the diversity in macroeconomic thinking, it adds to qualified candidates for the MPC, including qualified candidates to be a future governor.”

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