British pound rallies on Brexit optimism
Mark Carney agreed to remain at the helm of the Bank of England for an additional seven months, extending his stay for a second time to help steer the U.K. economy through the Brexit transition.
Chancellor of the Exchequer Philip Hammond ended days of speculation on the governor’s future, telling lawmakers on Tuesday that the Canadian won’t step down as planned in June 2019. He’ll now remain in office until the end of January 2020, roughly halfway through a period intended to smooth the U.K.’s withdrawal from the European Union. It also means he’ll be available for longer should talks with the EU fail and force a so-called hard Brexit in March 2019.
“I have been discussing with the governor his ability to be able to serve a little longer in the post in order to ensure continuity through what could be quite a turbulent period for our economy in the early summer of 2019,” Hammond said. “The governor has agreed, despite various personal pressures to conclude his term in June.”
The pound was little changed after the news, despite the extension being shorter than some reports had suggested.
“I suppose it's a compromise between acceding to the chancellor’s wishes that he stays for as long as possible, and his own desire to go,” said Peter Dixon, an economist at Commerzbank AG. “If he’d gone for the full 12, that would have taken him through to mid-2020 and then his successor probably wouldn’t have had much time to get their feet under the table before the transition deal expires.”
The decision is likely to prove controversial as Carney’s tenure at the BOE has long drawn both criticism and praise. He was seen as a key source of financial stability in the political power vacuum that followed the Brexit vote, but also drew the ire of pro-Brexit lawmakers who believe he waded too far into the political debate. He has been accused for much of his time at the bank of botching messages on policy.
Carney himself has said many times his plan was to return to Canada following his tenure at the BOE. His new exit date effectively wipes out speculation he planned to run in the nation’s next federal election, which has to be held by October 2019 at the latest.
As the March Brexit deadline nears, the U.K.’s future relationship with the bloc remains unclear, with Prime Minister Theresa May’s current plan is proving unpopular with lawmakers both at home and abroad. Even so, the BOE raised interest rates to the highest since 2009 last month, and said a gradual series of hikes would be needed in coming years to control inflation.
In a letter to Nicky Morgan, chair of the panel of lawmakers that scrutinizes the Treasury, Hammond said that the extension allows “for a new Governor to be appointed during the autumn next year.”
Still, the latest extension raises questions about the government’s grasp on the Brexit process if Carney’s presence is needed to ensure stability. It could also mean the Treasury is struggling to find a replacement while it focuses on the political negotiations.
“I recognize that during this critical period, it is important that everyone does everything they can to support a smooth and successful Brexit,” Carney said in a letter to the chancellor. “I am willing to do whatever I can in order to promote both a successful Brexit and an effective transition at the Bank of England.”
Next in Line
Potential candidates to succeed Carney include Andrew Bailey, currently head of the Financial Conduct Authority, or colleagues on the BOE’s rate-setting committee such as Andy Haldane, Ben Broadbent or Dave Ramsden. Female candidates mentioned include Sharon White, head of the communications regulator, and Santander U.K. Plc Chair Shriti Vadera.
“It provides a bit of stability, but the likes of Andrew Bailey, who was tipped to take over, I don’t think would have made any radical departures in terms of monetary policy from the expected path,” said Hetal Mehta, an economist at Legal & General Investment Management. “Whoever would take over, had they taken over in June next year, or now it’s going to be January 2020, would be looking at a very gradual policy normalization, subject to the negotiations in terms of our relationship with the EU.”
Carney, the former Bank of Canada chief, was appointed BOE governor in late 2012 after previously saying he wasn’t interested in the job. He initially said he’d serve just five years of what is usually an eight-year term, but following the Brexit referendum agreed to remain in place an additional year to the end of June 2019.