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Why King trumps Carney in the battle of the governors

4 December 2018

3:29 PM

4 December 2018

3:29 PM

If they were former Manchester United players, Booker prize nominees, or members of Oasis, the acrimony and arguments might be fairly run of the mill. Among current and former Governors of the Bank of England it is, to put it mildly, a little unusual. And yet Mark Carney now finds himself under sustained attack from his immediate predecessor Mervyn King over how it should handle our departure from the European Union. And in that battle of governors there can surely only be one winner – and it isn’t the incumbent.

In a piece for Bloomberg, King, who served with distinction at the Bank from 2003 to 2013, takes apart Theresa’s May’s exit deal in ferocious detail. It is, he argues, a betrayal of Britain that leaves the country worse off than either leaving or staying, the worst of all possible worlds. That we have reached this point is, in his view, a crisis of leadership on a par with the 1940s or the 1970s. More pertinently, given his background, he pours forensics scorn on the institution he once ran, which last week waded into the debate with passionate support for the Prime Minister’s deal, complete with its scariest possible forecasts – sorry, ‘scenarios’ – for what might happen to the country if it is not voted through.

The response from Carney? Equally scathing. “There was a time, maybe a simpler time, but a less successful time, when all the Bank did was focus on inflation,” he told the Treasury Select Committee today. “And we know how that turned out.” Ouch. Put simply, Carney is arguing that King wasn’t much use as a central banker, and we needn’t pay too much attention to what he is saying now.

In fairness, some of Carney’s indignation is understandable. A liberal Canadian technocrat, he had no way of knowing he’d be dragged into a national crisis of identity when he took the job of running the Bank of England. It probably doesn’t matter too much to him one way or the other whether we stay or leave and he might well be fed up with the whole thing. He keeps getting asked to come up with predictions one way or the other for what might happen, and he can hardly be blamed if people don’t like the results.

And yet, he has made the mistake of allowing the Bank to become dragged into the debate, and nothing can change that now. Carney was a fully paid up member of Project Fear, making dire warnings before the referendum which turned out to be completely wrong; now he has compounded that original mistake by allowing the Bank to be co-opted into steam-rolling the deal through Parliament. In fact, the economic consequences of Brexit are largely unknowable – after all, no major country has left before, so how could we possibly know? And while it may well have some impact, they can probably be dealt with. The Bank should have left it at that in 2016, and repeated the same advice ever since.

Instead, Carney has allowed what is meant to be a neutral institution become partisan in the bitterest political battle for a generation. In truth, we need a trusted, neutral central bank to steer the economy through the next six months. Carney’s credibility is now shot to pieces. It would be better if he stepped aside gracefully and let someone else take up the challenge. Who knows, maybe even Lord King could be tempted out of retirement?


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