A crash in the pound, with sterling trading down at $1.15, and heading to parity. A spike in gilts, and a flight by bond investors in a panic over the state of the British economy. As the headlines are dominated by reports that the Governor of the Bank of England might decide to pack his bags and return to his native Canada as early as next year, there has been lots of speculation about the havoc that might inflict on our already jittery post-Brexit economy.
Right now, no one seems to know whether Mark Carney is likely to stay on as Governor beyond his initial five-year term or not. But ignore some of the more fevered speculation you read in the press. In truth, the markets don’t care very much. Why not? Because Carney has been a fairly mediocre Governor, who has already lost much of the trust of the markets, and who now, it seems, can’t even make up his mind over the date of his own departure.
Over the weekend, there were lots of reports that Carney was quitting. This morning, the FT reported that he was likely to stay for the full eight years. Who knows what is really happening. The interesting point, however, is this. Sterling barely moved. In early trading on Monday it was down just a fraction at $1.21. Gilt yields meanwhile nudged down. A panic it most certainly was not.
Why? Because the real money doesn’t much care any more. Carney’s most immediate problem is that he called Brexit wrong. He allowed himself to be caught up in Project Fear, putting the weight of the Bank behind lurid predictions of a meltdown if we voted to leave. He then allowed himself to double down on that with an interest rate cut, and a fresh blast of quantitative easing, on the assumption the economy would crash. As it happened, it has carried on growing at healthy clip.
That is hardly the first mistake. Carney’s big idea on taking office was ‘forward guidance’ – that is, signalling in advance when rates would rise. At first it was when unemployment fell, then it was when wages rose, and yet when those conditions were met, nothing happened. Carney came to be regarded as a completely unreliable guide to anything.
In fact, Carney has not done that much. In almost five years in the job, he has tweaked interest rates once, with a quarter-point cut in the summer, and even that turned out to be a mistake. He’s photogenic and he talks well. But he has done very little to improve the British economy. The markets have rumbled that he is not very effective – and they no longer care much whether he stays or goes. In truth, neither should anyone else.
Join The Spectator for a discussion on the Autumn Statement, taking place on 23 November 2016 at 6.30 p.m. at Soho’s Ham Yard Hotel. After the new Chancellor presents his financial statement, The Spectator’s chairman Andrew Neil, editor Fraser Nelson and political editor James Forsyth will discuss what it reveals about the government’s preparations for Brexit. A Q&A session and drinks reception follow. In association with Old Mutual Global Investors.