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Who will succeed Mark Carney? Brexit brings uncertainty to BOE
THE British government is hiring.
Requirements: a candidate who can keep markets calm, put up with criticism from politicians and deftly respond to an unprecedented economic event as Britain tears itself away from the European Union (EU), while the rest of the world economy stutters.
Send applications to: unknown.
The person who succeeds Mark Carney as leader of the Bank of England (BOE) will have to brace for a challenge. When Britain voted to leave the EU, Mr Carney was quick to reassure the public that the central bank would support the economy as the country worked to severe the relationship.
Then came three tortuous years of negotiations between London and Brussels over the terms of departure. Mr Carney, who was due to leave the job in 2018, agreed twice to extend his term as the Brexit process ground on, working toward monetary and financial stability as the rupture with Europe threatened the very economy he was aiming to keep steady.
But now, as Mr Carney's Jan 31 departure approaches, the appointment of the bank's next governor is entangled in the most political of issues: who will be running the British government in a few months and managing Brexit?
Under former Prime Minister Theresa May, Britain's government started the search for a successor earlier this year. But there was no decision before Mrs May lost her way in the Brexit battle and was succeeded by the current prime minister, Boris Johnson.
The Treasury put a call out for applicants in April and maintains that it expects to make an appointment in the autumn. That choice would require the prime minister's blessing and then a review by a parliamentary committee. But Parliament continues to be torn by Brexit, leaving little opportunity for any significant committee work before the departure date of Oct 31.
Mr Johnson's tactics to push on with Brexit - even expelling members of his own party who disagreed in the last few weeks - has roiled all the political parties, with some members of Parliament calling for a new election. This has added more uncertainty to the selection of the bank chief and raised the question of whether the current government will be in charge.
The parliamentary committee responsible for scrutinising the appointment wrote to the chancellor of the Exchequer on Sept 18 seeking confirmation of whether the appointment would be going ahead as planned. No response has been posted on the committee's website.
"It's part of a political mess that the UK's managed to get itself into," said Charles Goodhart, a professor at the London School of Economics, who has sat on the bank's monetary policy committee. This mess, Prof Goodhart added, had made the appointment "much more complicated than it normally is".
Whoever takes on the role will be tasked with targeting inflation, regulating banks and responding to whatever fallout Brexit may bring.
"We're asking our governor to be an expert in monetary policy and politics and communications, but also financial regulation and managing financial risk," said Ed Balls, a former member of Parliament who was chief economic adviser to the Treasury in the late 1990s when the government made the bank independent and gave it control over monetary policy. "It takes an almost superhuman person to be able to play all these different roles."
The next governor will have little, if any, time to warm up to the job. Mr Carney has insisted he is leaving on Jan 31.
The next BOE governor may also face pressure from the government to help shore up the economy post-Brexit. "There will be a lot of pressure, political demands made," said Adam S Posen, president of the Peterson Institute for International Economics and a former member of the monetary policy committee at the bank.
Whoever succeeds Mr Carney will face an economy where investment has sunk, held back by the uncertainty surrounding Brexit, and growth that is still positive, but has weakened. The BOE's inflation target is 2 per cent and Britain is at 1.7 per cent.
Inflation could soar if the pound, which has tumbled against the US dollar amid Brexit uncertainty, hurtles lower after a no-deal departure. At the same time, the economy could take a hit from the shock of Brexit.
"That is the rock and a hard place" for a central banker, said Richard Portes, a professor at London Business School. "It's not a pretty picture to any reasonable economist."
The next governor will also be limited in his or her ability to respond to conniptions in the economy when global growth is slowing. "There's not going to be any good news," said Mr Posen at the Peterson Institute. "All the major central banks, all the major western economies are reaching a point where the next recession is going to be more than monetary policy alone can offset."
The BOE's benchmark interest rate is already low. It moved from 0.5 per cent before the Brexit referendum in 2016 to 0.25 per cent afterward. It has since risen to 0.75 per cent.
The BOE declined to comment, but Mr Carney in recent weeks has pointed out the limits to what central banks can do.
"In the end, monetary policy can only help smooth the adjustment to the major real shock that an abrupt no-deal Brexit would entail," Mr Carney said in a speech at a meeting of central bankers at the end of August.
Against this backdrop, whoever takes on the job would have to be a great communicator, said Zsolt Darvas, a researcher at Bruegel, a think tank. "It's important how clearly the message goes through, how financial markets understand communications from the central bank," Mr Darvas added. "In an uncertain financial environment, it's more important than in an ordinary economic downturn." NYTIMES