Financial News

  • 16 June 2014, 11:00

Carney Upstages Chancellor At Mansion House

No Chancellor likes being upstaged by his Bank of England Governor, but it seems to be a regular occurrence at the Mansion House.

The summer speeches from Britain's finance minister and the head of the central bank respectively are a key moment in the economic calendar.

The pair lay out their agenda for the coming year, they assess the state of the economy, and more often than not they give away a few clues about just how well they are getting on.

Occasionally the optics are not good: in 2009, Mervyn King laid into Alistair Darling's approach to financial regulation as the Chancellor sat by and drained his wine glass with increasingly ill-disguised annoyance. Darling never forgave him.

And now the Chancellor has been upstaged by his Governor yet again.

This year's Mansion House speech was supposed to be all about George Osborne's sensible new policies to clamp down on any prospects of a housing boom: new tools for the Financial Policy Committee; new incentives for local authorities to build homes on brownfield sites.

Then up stood Mark Carney. Much of his speech was the standard Mansion House fare: a tour d'horizon of the economy, some comments about how well it was going.

But the big surprise came in his words about interest rates: "There's already great speculation about the exact timing of the first rate hike and this decision is becoming more balanced," he said.

"It could happen sooner than markets currently expect."

That final sentence was certainly unexpected. Only last month the Bank Governor was signalling that there was no hurry to raise rates.

Now he is hinting that rates may rise even sooner than the markets think which, when he gave his speech, was March 2015.

There is now a decent and rising chance that rates go up later this year.

Now, you might expect the Chancellor to be upset about this turn of events. No finance minister much likes to fight an election against a backdrop of rising interest rates.

However, Mr Osborne and his advisors would rather paint it another way. As and when the Governor raises rates, they will depict it as a sign of success: that the economy is recovering so convincingly that interest rates are actually going up for the first time in well over half a decade.

Moreover, anything that minimises the impression that the UK is heading into a housing bubble will be reassuring for the Chancellor, who is increasingly paranoid about being remembered not for his stern austerity policies but for presiding over a property crisis.

Hence the fact that almost every speech we have heard from the Chancellor in the past six months has emphasised the steps he's taken to try to prevent another boom and bust from taking place.

Rarely has there been as much focus on the housing market: the Chancellor and Governor are determined to prevent a bubble, without upending the rest of the economy.

Advertisement