Home > Bank of England, Monetary Policy > Goodbye, Black Clouds

Goodbye, Black Clouds

I’m back from the beach… and I want you to recall the quotes from Mervyn King’s infamous “Black Clouds” speech of June 2012:

… a large black cloud of uncertainty hanging over not only the euro area but our economy too …
… Complete uncertainty means that the risks to prospective investments … are simply impossible to quantify …
… the black cloud of uncertainty and higher bank funding costs …
… The paralysing effect of uncertainty, with consumers and businesses holding back from commitments to spending …
… the black cloud of uncertainty has created extreme private sector risk aversion …
… private sector spending is depressed by extreme uncertainty …
… during the present period of heightened uncertainty …

Contrast with the quotes I can cherry-pick from Mark Carney’s first speech as Governor:

We aim to get there in part by reducing the uncertainty that has held back growth.

… First, we are giving confidence that interest rates won’t go up until jobs, incomes and spending are recovering at a sustainable pace.

… Our forward guidance provides you with the certainty …

should give greater confidence … 

Our forward guidance acts as a stabiliser, …

However much I dislike the specifics of BoE policy, it would be churlish of me not to say it: this is much, much better.  This is how a central bank Governor should talk; certainty, confidence, stability.  Mark Carney is doing his job, and that is a good thing.

  1. james in london
    September 5, 2013 at 08:26

    Weclome back! Good points as ever. And those PMIs are looking good this week. Or is it just all the good weather you and everyone else in the UK has been enjoying? And still is.

    More seriously, it is typical that the moment you choose a real economy measure with which to help manage your monetary policy along comes a real economy change that messes up that measure.

    Conservatives ‘considering ways to raise minimum wage’

    So, unemployment could rise or at least take longer to fall. And monetary policy could stay at the same setting for longer than it would or should otherwise. Or maybe not. Who knows?

    Lucky we have such a wise bunch of MPC’ers to interpret the numbers and that have the knock-outs to ignore the unemployment measure if they want. Meanwhile monetary policy remains as discretionary as ever.

    • September 10, 2013 at 11:17

      Thanks James. The PMIs are impressive and I see lots of hawks looking a bit awkward. The minimum wage stuff is astonishing from the Tories, I’ll do a post on that.

      I do think with “forward guidance” we do have a bit more “policy” in the best sense, and a bit less discretion. But I agree 99% with your comments. Much to discuss… more posts coming.

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