Bank of England Governor Sir Mervyn King has urged his successor Mark Carney not to bring to Britain his trademark policy of spelling out how long interest rates will remain low.
Sir Mervyn also said the bank could not be run as “a one-man show,” a sign of concern at high expectations that the arrival of the Canadian will lead to a quick fix for Britain’s slow economy.
In an interview with Sky News television broadcast on Sunday, Sir Mervyn praised Mr. Carney, saying Britain was fortunate to have him. “I think everyone will admire what he will achieve,” he said before sending a message to his successor.
“He will work with the rest of the monetary policy committee. It’s not a one-man show,” Sir Mervyn said. “There is a very strong team of people here in the Bank of England which I have built up over 20 years.”
Sir Mervyn, who steps down at the end of June, said he was confident the bank under Mr. Carney would make the right judgments but he stressed his opposition to one of the changes that outgoing Bank of Canada Governor is expected to make – signalling how long interest rates will remain low.
“What none of us can know of course, is what the right decisions will be down the road,” Sir Mervyn said. “They will have to made month-by-month, according to how the economy develops, and I am sure that they will make the right decision.”
Mr. Carney was chosen as the next Bank governor last year by Chancellor George Osborne, who hailed the former Goldman Sachs banker as “the outstanding central banker of his generation.”
Mr. Osborne has asked Mr. Carney to report to him on the merits of adopting a system of signals about interest rates similar to that used in the United States.
There, the Federal Reserve Board has said interest rates will not go up unless unemployment falls or inflation expectations rise to specific levels.
Mr. Carney took what was seen as a bold step by adopting a similar policy in 2009 at the Bank of Canada, before the Fed’s move, in an attempt to persuade households and businesses that the cost of borrowing was not going to rise in the near future.
But Sir Mervyn and other Bank of England policymakers have warned that “forward guidance” risks undermining the credibility of a central bank if it has to change course more quickly than expected on interest rates. Getting agreement on how guidance could be used in Britain will be Mr. Carney’s first big challenge.
In the interview with Sky, Sir Mervyn expressed concern that a flagship British government scheme to boost mortgage lending must not become permanent as it has in the United States.
“We do not want what the United States have, which is a government-guaranteed mortgage market, and they are desperately trying to find a way out of that position,” he said.
He also said more needed to be done to nurse the British economy back to health after some recent signs of recovery.
“We will need to do more to use up the spare capacity, and to get back to a healthy, growing economy. But we are in a recovery period now,” he said.
Sir Mervyn has voted for more bond buying in recent months but most of the bank’s policymakers oppose the idea.
He said the single biggest risk to Britain’s nascent economic recovery was the crisis in the euro zone, a region unlikely to be growing quickly “for a long while.”
Britain’s banks were on track to return to health after a series of reforms, which were prompted by the financial crisis, would be complete in one or two years’ time.
“If we can get to end of this process, then we will have revolution in the way in which banking is handled and we will be able to be proud again of British banking,” he said.
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