Bank of England Governor-designate Mark Carney said Britain is one of the world’s crisis economies, following calls on the government by Managing Director of the International Monetary Fund Christine Lagarde to relax fiscal policy.
While Carney was echoing analysis from IMF, the comments give a sense of his view on the British economy just two months before arriving in London to run the U.K.’s central bank. He added to concern expressed by the IMF that both fiscal and monetary policy are too tight for the deteriorating economy.
“There’s three classes of economies in the global economy,” Carney said in Washington today. “The crisis economies, they are well known including the U.S., and I think the insights from Christine Lagarde at the IMF is that the U.S. is breaking out of that pack,” he said. The economies still in crisis “include obviously the euro zone at the center, the U.K. and Japan,” he said.
Carney has already won greater flexibility from Chancellor of the Exchequer George Osborne to allow inflation to overshoot its target while the economy remains weak. The IMF said the economy had deteriorated sufficiently to warrant looser fiscal policy from Osborne, jarring with the government’s deficit- fighting rhetoric.
“The growth numbers are certainly not particularly good,” Lagarde told reporters today in Washington. “What has changed clearly is the quality of the numbers.”
The IMF said this week the U.K. economy will grow by 0.7 percent this year, slower than a 1 percent forecast made in January. “Consideration should be given if growth weakens,” to loosen policy, Lagarde said today.
Bank of England policy maker Martin Weale said that there’s a risk the U.K. fell into another recession in the first quarter, and signaled easing inflation pressures may reduce the barrier to more stimulus.
“The inflation position, at least from my perspective, has improved somewhat,” Weale said in an interview in London today. There has been a “favorable signal from wages and the other favorable signal very recently has been the news on commodity prices. They certainly make me feel there’s more room for maneuver than there would have been if they hadn’t happened.”
Carney’s view of the U.K. suggests he may push for policy change when he arrives in the U.K. in July. Today, he defended Osborne’s changes to the central bank’s remit after they were criticized by Mervyn King, the institution’s current governor.
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