Keeping Mark Carney at the Bank of England is the latest installment in the U.K. preparations for a no-deal Brexit.
Extending the governor’s term means Chancellor of the Exchequer Philip Hammond has one less thing to worry about if the U.K. crashes out of the EU in March 2019. It creates some continuity of leadership at an institution that may be the biggest buffer against any resulting financial and economic turmoil.
The announcement on Tuesday capped weeks of speculation about Carney’s future, and Hammond was explicit in why he wanted the governor to stay. Summer 2019 — right when Carney was due to leave — could be “quite a turbulent period,” he said. While the extension is only seven months, it may be enough to get the U.K. through the upheaval.
“The majority of the uncertainty is whether we reach a Brexit deal,” said Philip Shaw, an economist at Investec in London. “The sharper end of that volatility is probably in the near term.”
Hammond’s plea to Carney was first reported late last month and came just weeks government published two dozen papers on preparations for a no-deal outcome, some of which involved the stockpiling of food and medicine.
“A governor leaving at the end of June, his bags already packed, would be in a poor position to represent the U.K. in what might be some quite critical and time-critical negotiations over that period trying to find practical solutions to situations that might arise,” Hammond said on Tuesday.
Carney’s tasks — should those “situations” occur — could involve helping banks to keep lending, providing monetary support to the economy, or even defending the pound.
“It’s certainly sensible to try and calm nerves with all this Brexit chaos,” said David Blanchflower, a former member of the BOE’s rate-setting panel, when asked about Carney’s extension.
The U.K. central bank is already making its own preparations.
It’s not yet provided many details, except to say that its annual stress tests of banks show the financial system is strong enough to withstand a worst-case outcome.
|What Our Economists Say…|
|“On the assumption that Brexit is smooth and orderly, Governor Mark Carney may have little to do in his extended term. Under that scenario, the MPC would lift rates in May 2019 and then wait, reflecting the view that there’s little to gain from slowing the economy while there’s a risk Britain’s departure from the EU will be chaotic. We then expect economic conditions will warrant another hike, the last of Carney’s tenure, in November 2019.”|
Companies are also getting ready. On Tuesday, JPMorgan executive Mark Garvin told lawmakers that the U.S. bank is in a “quite advanced stage of preparation.”
For the government, there is a cost to trying to keep some stability at the BOE, albeit for just another seven months.
Hammond has come under fire for prolonging the tenure of a governor who’s proved unpopular with pro-Brexit lawmakers. It’s an additional stick with which to beat Prime Minister Theresa May, who’s already engaged in all-out war with members of her own party over her current Brexit plan.
Others have said the extension — Carney’s second — sets a bad precedent and makes a mockery of the legislation that sets out the length of governor’s terms.
But the government hadn’t yet even advertised for a new governor, and sticking with Carney may be a price worth paying as May navigates negotiations both with her own lawmakers and the EU.
Matters are quickly coming to a head, with the U.K. and the European Union said to be preparing to announce a special summit to sign the Brexit deal in November and May facing a renewed threat from inside her own party.
“Hammond’s in-tray is full of other stuff with Brexit,” said Samuel Tombs, an economist at Pantheon in London. “It’s a relief to kick the can down the road a bit further.
With Carney, you have that extra bit of certainty.
We know he’s concerned about Brexit and will be on message with the chancellor.”
Trust me, there is going to be trouble!!