The U.K. conservative party threw away its economic credibility this week: David Oliver
Former Bank of England Governor Mark Carney said the current crisis in the U.K. provides critical lessons for policymakers in Canada and elsewhere on the need for sound macroeconomic policy.
Carney, speaking in Ottawa at a Senate committee hearing on the economy hours after Liz Truss announced her abrupt resignation as U.K. prime minister, listed a series of takeaways from the financial and political turmoil in Britain, including the importance of ensuring monetary and fiscal policy don't work at cross purposes.
“One of the lessons is that sound monetary and credible fiscal policy will be rewarded, but mistakes will be punished,” said Carney, who was also governor at the Bank of Canada and now heads Brookfield Asset Management Inc.'s transition fund.
Other lessons include the “importance of institutions,” such as the independence of central bankers.
The U.K. situation, which saw Truss announce a massive package of unfunded tax cuts before being forced to unwind it amid a market rout, also illustrates growing tensions between different macroeconomic objectives, such as price stability and financial stability.
Noting that the attempted U.K. tax cuts favored the rich, Carney also said the resulting crisis shows the “imperative” of making sure policy is inclusive.