LONDON - Mark Carney, the man about to take the helm at the Bank of England, faces his first public grilling on Thursday about how he would revive Britain’s economy.
Canada’s central bank governor was British finance minister George Osborne’s surprise choice in November to succeed Mervyn King, who retires at the end of June as governor of the 318-year-old bank nicknamed the Old Lady of Threadneedle Street.
Carney, a 47-year-old former Goldman Sachs banker who studied at Harvard and Oxford, has a reputation for a tough approach to bank regulation and helping Canada avoid the worst of the financial crisis.
More recently he has stirred the UK policymaking establishment by appearing willing to consider a shift in how the central bank fights inflation.
What exactly Carney will do differently to King is unclear. For a start he will be just one of nine UK interest rate setters and he has so far confined himself to generalities rather than talking about the Bank of England itself.
That will change on Thursday when he is quizzed for three hours by a British parliamentary committee from 0945 GMT.
The committee has said its main concern will be to “question Dr Carney on whether he thinks that there may be a better monetary policy for the UK than the current one”.
Independent reports last year criticised the Bank for being slow to act at the start of the 2008-2009 financial crisis, from which the economy has still not recovered, and of being burdened by an over-hierarchical management culture.
Carney is also likely to face questions on bank regulation — where the central bank is getting sweeping new powers to control credit and even recommend the break-up of banks with risky investment arms — as well as how he was appointed.
After initially denying interest in King’s job, Carney leap-frogged candidates who went through the formal application process and was granted a much more generous package of pay an perks than King, worth 874,000 pounds ($1.38 million) a year.
He will serve a term of just five years, rather than the seven originally intended, fuelling speculation that the BoE job — where he will represent British interests overseas — may be a stepping stone towards a future in Canadian politics.
The 13 members of parliament who make up the cross-party Treasury Committee lack the power to veto Carney’s appointment, but if they have serious concerns they can recommend a full parliament debate in what would be an embarrassing snub to Osborne.
Carney has voiced some support for two policies which are deeply at odds with central bank’s practice and potentially imply a looser monetary policy stance more supportive of growth.
The first, which he has championed at the Bank of Canada, is to be more explicit about when interest rates will rise, something which one policymaker said would make monthly policy meetings pointless.
The other — which he alluded to in a speech in December but did not back explicitly — is to target a mix of growth and inflation known as nominal GDP, rather than inflation alone. This idea is popular in some academic circles but has not been taken up by any major central bank.
Andrew Sentance, a former BoE policymaker, said Carney was likely to be happy to talk about the first idea, but steer away from the second, saying it is ultimately up to Osborne to pick the bank’s target.
“Ahead of taking over the reins at the Bank of England he is not going to want to say too much that is a hostage to fortune,” said Sentance, who now works as an advisor to accountants PwC.
“The danger ... is people will read too much into the nuances of what he might say, or not say,” he told Reuters.
Royal Bank of Canada economist Jens Larsen, who previously worked at the BoE, said Carney would need to take care that he did not make comments that were open to misinterpretation, as arguably happened with his speech in December.
“I think they will explore this idea of changing the target. I think he will come clean on that, and be much less favourable than his speech suggested,” Larsen said.
“The only worry I have, if you compare him to the current governor, is that he is not as careful with his words.”
Larsen added that how Carney will manage the BoE will also be a key theme. Bank of Canada staff do not publicly disagree with Carney, whereas senior Bank of England officials frequently say where their views differ from King’s.
The Treasury Committee has sometimes had spiky exchanges with King, notably on issues such as his management style, accountability, and role at the start of the financial crisis.
But Thursday’s hearing is likely to be more consensual, seeking to establish what Carney’s initial views and intentions are, so he can be challenged on them later. ($1 =0.6351 British pounds)