The negative effects of leaving the EU have «justified themselves,» says a former bank manager. Photo: David Rose
Mark Carney blamed Britain's stubbornly high inflation on Brexit, claiming he warned the public that leaving the European Union would hurt the economy.
Former Bank of England governor says that he was rehabilitated after predicting Brexit would lead to higher prices, a weaker pound and slower growth.
Branded as the “architect of the fear project,” Mr. Carney has repeatedly said that the entire economic impact of Brexit was negative . He said that unemployment would rise with anything but a «close» relationship with Brussels after Brexit.
In an interview with The Telegraph, he said: people have to live with this reality.
In 2018, Mr. Carney published a report along with a colleague with gloomy predictions, including a no-deal scenario that caused house prices to fall by up to 30% and a recession more devastating than the financial crisis.
Mr. Carney, who led the Bank for seven years until 2020, said a series of «negative supply shocks» had crippled the economy and led to unexpected spending increases.
He said it was the biggest energy shock since then. The 1970s, combined with a shrinking workforce and the aftermath of Brexit, brought about a «unique» adjustment in the UK that he suggested could take years to unwind.
“We stated before Brexit that this would be a negative supply shock for a period of time, and the consequence would be a weaker pound, higher inflation and weaker growth. And the central bank will need to build on that. Now that's exactly what happened. This came about as a coincidence with other factors, but it is a unique aspect of the economic adjustment that is taking place here.”
Mr. Carney's intervention comes at a time when Prime Minister Rishi Sunak is fighting to halve reduce inflation this year.
However, food prices are rising at the fastest rate in 45 years, wage growth remains high, and persistent inflation has wreaked havoc on the mortgage market amid investor bets that interest rates should rise from 4.5% to 5%. 75% to bring down inflation.< /p> 1406 bank interest rates
Chancellor Jeremy Hunt said the UK has «no alternative» but to raise interest rates to keep prices down.
The UK is not the only country struggling with high inflation. In Germany, which the International Monetary Fund predicts will have the slowest growth in the G7 this year, prices rose 6% year-to-date through May, while inflation in Italy was 8%, slightly lower than April. the overall UK rate of 8.7%. pc.
But Mr. Carney, who is now UN climate and finance envoy, insisted that Brexit was partly to blame.
Describing the Brexiters as «a group of people who portrayed this as something that was supposed to be wholesome, positive and growth-driven,» he said those views contrasted with those of the Bank and other «technocrats» who, «based on analysis, were skeptical about it.»
He said the negative results «proved to be so.»
Despite Mr. Carney's repeated statements about the risks of Brexit, the labor market remains strong and the unemployment rate remains close to its lowest level since the 1970s.
Most economists say the UK's reliance on energy imports, combined with a tight labor market, has been the main reason for persistently high inflation.
1606 Inflation Shock, UK
A number of former cabinet ministers also dismissed Mr. Carney's comments.
Sir Jacob Reese Mogg, former Secretary of State for Business, described Mr. Carney's criticism of Brexit as » sheer nonsense», instead blaming the Bank for worsening the UK cost of living crisis.
“He uses dubious numbers, he is responsible for many of the failures of the Bank of England, he was a bad manager who politicized the Bank and led forecasting errors and failures at the beginning of the QE reversal process when the economy was strong,” Sir Jacob said. p>
He previously accused Mr. Carney of running Project Hysteria after the former governor's predictions of a possible recession and skyrocketing unemployment, which he claimed could be caused by the vote to leave the EU.
< p>Dame Andrea Leadsom, another former Business Secretary added: “I don't agree that inflation is caused by Brexit. Inflation is a serious problem all over the world.
“Energy price spikes are a major problem caused by Vladimir Putin's invasion of Ukraine and are not unique to the UK. You can certainly argue that supply chains have been disrupted by the Covid pandemic and this has made post-Brexit recovery difficult. But to say that Brexit is to blame for everything is just nonsense.”
Mr. Carney predicted this week that the UK and other advanced economies will face years of higher interest rates due to «tectonic shifts» in the global economy. it has forced a rethink of globalization.
Inflation remains well above the Bank's 2% target, and politicians have acknowledged that inflation is unlikely to be brought under control before 2025.
1406 how the bank got it wrong
On the contrary, inflation in the US fell to 4% in May, while in Belgium it fell to 2.7% and in Spain to 2.9%.
Mr. Carney warned that these successive economic shocks would have a negative impact on the economy, adding: “The question is how temporary is this? And how quickly are you getting over it?”
He added that it will take more than usual two years for central banks around the world to bring inflation back to target levels to avoid a devastating recession.
“Central banks have sought to expand that horizon. But they cannot stretch it to the limit,” he said. “And they have to explain how far things will go before they can fully return [to the goal]. The economy needs to adjust to the shock and take part of it on the side of employment, and part of it on the side of inflation. It's about finding the right compromise.»
Mr Carney warned that UK economic growth is also lagging behind the G7 due to Brexit and other factors. “The economy is just returning to its pre-Covid levels. We had very strong inflation. And the order of magnitude of these supply shocks in the UK was greater than in an economy like Canada, where inflationary pressures are less and the economy is well above its pre-pandemic levels.”
Andrew Bailey, the current governor, announced at this week that the Bank will review its errors in inflation forecasting, acknowledging that «it will take a lot longer» to bring inflation down. Mr. Carney suggested he was sympathetic to his former colleagues, but added: «They know and expect to be held accountable.»
«The West should punish Putin with an energy revolution»
For a man who has spent the better part of a decade and a half fighting fires at the helm of two G7 central banks, Mark Carney is not going to slow down.
After leaving his top job at the Bank of England in 2020, the marathon runner has changed focus .
Today he is somewhat of an advocate for environmental, social and corporate governance (ESG). This has led him to take on a range of roles, including leading the Glasgow Financial Alliance for Net Zero — or «G-Fanz» as he calls it, a club of financial institutions committed to sustainability.
< p>He joined the financiers of Brookfield Asset Management as head of transitional investing, and Boris Johnson turned to Carney for advice during the Cop26 in Glasgow. The Canadian is also currently the United Nations Special Envoy for Climate Action and Finance.
Carney returned to Ottawa with his wife and four daughters. He's been in London for a few days, mostly for personal reasons, though the 58-year-old former bank manager has a message for you: be green to wrest Vladimir Putin's power from energy.
«The war in Ukraine has taught we have some very clear lessons,” he says as we meet in the building across from Mansion House, the official residence of the Lord Mayor of London and a stone's throw from his previous employer on Threadneedle Street.
“Firstly, [the old fossil fuel system] was not suitable for this purpose. It doesn't provide energy security, it's incredibly unstable.»
Second, he says the current system encourages the OPEC cartel of oil-producing countries like Saudi Arabia, Iraq and Kuwait to manipulate the market and raise prices.
“We have a system that is expensive. It's changeable. It is unreliable and unstable. This highlights the importance of not only the sustainability of this energy system, but also energy security.”
That's why Carney believes that reducing net emissions to zero or no longer increasing the total amount of greenhouse gases in the atmosphere is very important. so important.
In 2019, the government set a target of zero emissions by 2050, and then set additional milestones to reach it.
Carney describes the UK as “transition leader so far moment». After all, many of the UK's electricity needs are already covered by zero-carbon sources.
According to the National Grid, 44% of electricity was generated in this way in May, and peaked at 80% on May 4. Last month, wind energy accounted for a fifth of the UK's electricity needs.
UK: Electricity
Moving towards a world of cheaper, cleaner energy is one thing, but the Russian invasion has also prompted a change of heart from the oil and gas giants.
BP and Shell are just two of the biggest oil companies slowing down their decarbonisation plans as governments rush to secure cheaper energy. BP says it aims to invest up to $11 billion (£9 billion) annually in the company's oil and gas business in 2025 alone, up from $9 billion in 2021.
For Carney, whose 2021 book is titled Value(s), the word has a different meaning. His 500-page account of what went wrong during the financial crisis, COVID-19 and climate change calls for a new kind of economy. based on putting a goal above profit.
He argues that the two are not mutually exclusive, although he laments the loss of urgency that he admits could lead to a «shift» of global climate targets .
“I expect there is a broad understanding of the magnitude of the impacts of climate change that we are already feeling in this country, we are feeling around the world,” he says.
“It will be much worse even if we achieve our goals, and catastrophically worse if we refuse this transition.”
The problem is that building the infrastructure necessary to support this transition takes time and money. The UK government lacks both: last year the annual borrowing bill was £137bn, and the interest on the debt is set to rise even more as the Bank's Monetary Policy Committee (MPC) struggles to control inflation.
Squeezed out. between Joe Biden's $369 billion Inflation Reduction Act (IRA) and the EU's Green Deal industrial plan, the promises of British politicians have been small fry at best.
Even Labour's flagship plan for green infrastructure has become part of the economic reality. Sir Keir Starmer abandoned his plan to spend £28bn a year on new green jobs and technologies just weeks after his shadow chancellor Rachel Reeves bragged about the party's environmental credentials during a trip to the US.
< p> Reeves insisted on it. Instead, Labor will seek to 'ramp up' green investment to eventually meet the target.
Sir Keir also confirmed that Labor will block all new domestic oil and gas developments if he enters Downing Street.< /p >1306 Use of renewable energy
Carney is careful not to talk about specific politicians or parties, but even he acknowledges that some investment in fossil fuels is needed to ensure a smooth transition to renewables.
“We emphasize that investments in fossil fuels are not non-existent, they are, but they must be low in cost and low risk,” he says. “It makes no sense in the transition to net zero to develop an energy resource that will pump 30-50 years. Are there any that would have a shorter schedule? Something like a decade? Yes, that makes sense.»
North Sea Transitional Authority says UK oil reserves remain «significant» with «proven and probable» reserves on the continental shelf estimated at the equivalent of 4bn barrels of oil . . Carney has previously suggested that investments in clean and dirty fuels should be in a ratio of «4:1, not 4:0».
He also says that investment will be required to replace Russian oil and gas in the short term .
“We are not going to rely on Russian gas, Russian oil. We want to channel that energy aground. They deserve to have this energy abandoned given their war crimes. Therefore, this requires investments in other energy sources.”
It also raises the question of how much all this will add to consumer bills. Economists at Nomura warned last month that the massive investment needed and the initial higher cost of going green would push up prices, add bills and ultimately make it «harder for central banks» to bring inflation back to their 2 percent target. Carney insists that costs will be «manageable» and mean cheaper energy in the future.
That's the message Carney will take home next month when he returns to London to take part in a season of climate events at the Southbank Center called Planet Summer. The Canadian joins an all-star cast that includes activist Greta Thunberg and Catatonia's Cerys Matthews.
He's used to being in celebrity company, with books endorsed by Christine Lagarde, president of the European Central Bank, along with rock star Bono from U2 and artist Anthony Gormley. On July 10 at Southbank, Carney will discuss the topics of his book and climate change — he believes that the world is facing an emergency.
“What we are seeing in the UK right now is a shock to living standards due to the fossil fuel system. It's because of the current system,” he adds. “So you're clinging to this system that has proven time and time again to be unstable, unreliable and ultimately unsustainable? Or are we moving to the exact opposite system?”
“I don't like staged shots. This is not mine, ”Mark Carney admits in an interview with The Telegraph. Credit: David Rose
But, surprisingly for someone used to being the center of attention, Carney is camera shy. Although he is dressed for the occasion, wearing his signature white collared shirt and gray tie, more likely to be seen at the Peaky Blinders than at the Bank of England, he does not want to be photographed outside on the balcony.
“ I don't like staged shots. It's not mine,” he tells our photographer. Mild weather and a clear view are not enough to convince the former Goldman Sachs banker — at least at first.
«I'll give you a minute,» he finally says to the snapper, seeing how he, having suffered a defeat, folds his equipment. «He's like a puppy,» jokes Carney, though he remains reluctant to look at the camera, preferring a more ponderous stance.
That wasn't always the case for someone who grew up in Fort Smith. in the Northwest Territories of Canada, the third of four children.
His father was a school principal turned academic, and his mother also returned to that path when she returned to university, resulting, according to Carney, he grew up in a «house full of books».
But he's not just a bookworm.
A passionate runner, he completed the London Marathon in just three and a half hours in 2015 and played hockey as a teenager.
After earning a bachelor's degree from Harvard he received his Ph.D. He received his bachelor's degree in economics in 1995 from the University of Oxford, where he met his British wife, the economist Diana Fox Carney.
He eventually became a British citizen in 2018, fulfilling a promise he made when he took office as governor.
p>
Carney hasn't spoken much about his personal life while at the Bank, though he once a group of schoolchildren asked him what he would spend all the UK money on if he had the opportunity. His answer? Milky milk chocolate, tickets to watch his favorite Everton and lots of old music records.
Chosen by former Chancellor George Osborne to succeed Lord Mervyn King in 2013, he became the first foreigner to lead the institution since it was founded in 1694. hit the chancellor, who changed the terms of the role to protect his man.
Carney initially agreed to serve a term of five years instead of eight. After Brexit, he extended this period twice and left the Bank in March 2020, shortly before the quarantine.
Carney took over the Bank after the financial crisis, when his powers were expanded. Most say he left the Bank more open and diverse than when he joined. While others say he has politicized what should have been a technocratic role.
He has also come under fire for hinting at a rate hike but failing to follow through, earning himself the infamous nickname «unreliable boyfriend» for sending conflicting messages to British households.
Many feel that Carney's pre-Brexit intervention was too political. Before the vote, he warned that it could lead to a recession in the economy, while a separate analysis by the Bank said that the decision to leave the EU would hurt economic growth, fuel inflation and increase unemployment. To this day, Carney feels justified.
Today he wants to discuss interest rates and inflation. Although Carney does not want to get involved in politics, he is even more careful not to comment on what his successor, Andrew Bailey, should be doing at the Bank. “There are nine members in the IPC, they don’t need a tenth, and certainly not the one who served in it before,” he says.
Bank of England Governor Andrew Bailey has been criticized for the institution's failure to control inflation. Photo: HENRY NICOLLS
However, he offers an explanation as to why inflation has been more resilient in the UK than in other countries. Energy is one of the reasons. Although the UK has stopped importing oil, coal and gas from Russia, it remains heavily dependent on countries such as Norway, Qatar and the US for its energy needs.
Another reason is «very, very tight» labor market in the UK, which Carney describes as «good» for the economy as more people are employed, but also worrisome as it means bosses have to pay more to find the workers they need.
But the third reason he dwells on most: Brexit.
Leaving the EU has made the UK smaller and more exposed to inflationary shocks. Accused at the time of Project Hysteria, Carney believes there is still a point.
“We [the Bank] stated before Brexit that this would be a negative supply shock for a period of time and the consequence would be a weaker pound, higher inflation and an end to weaker growth. And the central bank will need to rely on the fact that this is exactly what happened. This happened in coincidence with other factors, but it is a unique aspect of the economic adjustment taking place here.”
Carney warned that all of these factors will likely keep interest rates high for many years to come. The politicians then face a compromise. Is it better to suppress inflation through economic growth and jobs? Or should they let the economy heat up if that means more people can stay at work?
“When you face supply shocks like this, you infer compromise is on the horizon. over which you return inflation to the target. Therefore, central banks sought to expand this horizon. But they cannot stretch it to the limit. And they have to explain how far things will go before they can fully return it,” he says.
While he won't comment on the Bank's current shortcomings, he does suggest that people's frustrations with central banks are justified. “It is understandable that the population around the world is feeling frustrated after some very difficult years with Covid. Secondly, [this] series of negative shocks is not just a concept, it shows up every day in food bills, gas bills, mortgage bills. This adds to the disappointment.”
He's back to Brexit. “We have an adjustment in this economy that there was a certain group of people who portrayed it as something that was supposed to be smooth, positive and stimulate growth. There was another group of technocrats who were based on analysis, were skeptical about this — and this is proven. It's not good to say, «Well, we told you,» because people have to live with this reality.
Carney, who spoke before the Bank announced a review of how it makes and uses economic forecasts, offers his successor some indirect advice. In Values, he says there are five crisis management lessons everyone should learn, including the need to «communicate often and honestly,» «talk directly» about «both strengths and weaknesses,» and use «force majeure» when you can. “Hope is not a strategy,” he says.
Should today's central banks take note, I ask? Carney agrees that you should «acknowledge your mistakes and explain them,» but adds, «I think the biggest challenge is explaining why things didn't work out the way you might expect. So: here's what we thought, that's why inflation is still high, and explain the difference. It's always hard to do…but it's necessary.”
So how high will interest rates have to rise given this series of negative supply shocks, I ask? He glances at his phone.
“You're running out of supply,” he jokes, indicating that we don't have time. What about inflation prospects?
«This is a job for the MPC,» he says with a smile that suggests he's glad to be out of the political eye—at least for now.
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