Governor-elect of the Bank of England hints that more vigorous action may be required if economy remains subdued
Mark Carney, the governor-elect of the Bank of England, has dropped a strong hint that he would favour more vigorous action to boost the UK economy if growth remained subdued when he takes over next summer.
Giving his first speech since being appointed to run Threadneedle Street, Carney said in Toronto on Tuesday night that central banks should be prepared to ditch inflation targets in the event of sluggish growth and instead set themselves the task of raising national output.
Carney, the governor of the Bank of Canada who will take over from Sir Mervyn King next summer, insisted he was not referring to the UK. However, his comments will be seen as an indication he might press the Treasury to ditch the government’s 2% inflation target, the centrepiece of monetary policy for the past 15 years.
He said central banks should be prepared to pledge to keep borrowing costs low for an extended period or set targets for unemployment – policies that have been adopted by the US Federal Reserve.
“If yet further stimulus were required, the policy framework itself would likely have to be changed,” Carney said.
Carney expressed support for nominal GDP targets, in which policies are designed to increase national output by a set amount each year regardless of how the increase is divided between inflation and growth.