Canadian becomes first foreigner to head Bank of England today

Mark Carney becomes first foreigner to head the UK central bank today and faces a divided institution as he attempts to bolster fragile economy

PUBLISHED : Monday, 01 July, 2013, 12:00am
UPDATED : Monday, 01 July, 2013, 4:17am


Canadian Mark Carney begins his job as governor of the Bank of England (BoE) today, joining an institution divided on whether to pump out more cash stimulus to boost Britain's fragile recovery.

Carney, who made his name as head of the Bank of Canada where he helped to guide the nation's economy through the global financial crisis relatively unscathed, is replacing Mervyn King, who led the BoE since 2003.

The 48-year-old Canadian is the first foreigner to lead the central bank since it was founded in 1694, and takes charge after it was recently granted new regulatory powers over Britain's troubled commercial banking sector.

"Mervyn King is handing over a battle-weary UK economy to Mr Carney," said Kathleen Brooks, research director at trading website

"King did the best he could in tricky circumstances, but the markets expect Carney to deliver and help boost the economy. If he does not, then he could find his impeccable reputation as a central banker starts to fade."

Carney will participate in his first Monetary Policy Committee (MPC) meeting on Thursday, when the bank is expected to maintain rates and the level of stimulus. Under King, the BoE slashed its main lending rate to 0.50 per cent, a record low level and where it has stood since March 2009. It has also pumped £375 billion (HK$4.4 trillion) of new cash into the economy under quantitative easing (QE).

Under QE, the bank creates cash that is used to purchase assets such as government and corporate bonds with the aim of increasing lending by retail banks to boost economic activity. But the bank's main task is to keep inflation close to a government-set target of 2 per cent.

Carney has suggested that economic output might be a better measure for the central bank, with British inflation struggling during King's watch to stay consistently close to the target.

James Humphreys, investment manager at Duncan Lawrie Private Bank, said Carney faced a tough task handling the stimulus policy.

"Market expectations around Carney's arrival are very high ... In reality, the options available to him are limited as he is only one of nine members" of the MPC.

Quantitative easing helps to keep interest rates low, but many analysts argue that it also pushes up inflation.

King had called for more "easy-money" at his final meeting in June but was out-voted by fellow policymakers for the fifth month in a row.

Two other MPC members have also been calling for more stimulus, while analysts believe others could join the ranks at upcoming meetings owing to Britain's tepid economic growth. Uncertainty also surrounds the future stimulus outlook for the United States after a Federal Reserve official on Thursday moved to soothe fears that the US central bank would wind up its QE programme too soon.

"Bank of England officials are already dropping heavy hints and indications to the market that an end to QE and higher interest rates are a long way off in the UK, even if US monetary policy changes," warned Humphreys.

Carney, who intends to take up British citizenship and has a British wife, was born in Fort Smith, Northwest Territories, Canada.

He has been criticised from some quarters over the size of his new remuneration, which stands at £874,000 (HK$10.3 million) a year and also includes an annual housing allowance of £250,000.