August 28, 2013, by Emma Thorne
On the road to economic recovery… but expect a few bumps along the way
The new Governor of the Bank of England has delivered his maiden speech from University Park campus, detailing how he intends to drive Britain into a sustainable recovery — and how 7 could be the magic number for a stronger economy.
Cutting a relaxed, confident and charming figure, Canadian Mark Carney said the Bank of England’s main task would be to nurture the fledgling recovery, which is taking hold amid a ‘rising tide of optimism’, and promote growth which has been stifled by uncertainty and a lack of confidence.
Addressing business leaders at a lunch at the East Midlands Conference Centre – hosted by the CBI, Derbyshire and Nottinghamshire Chamber of Commerce and the Institute of Directors — he said: “The signs are that this recovery is broad based and set to continue. This is welcome and should be encouraged.
“Worst recession in living memory”
“Over the past five years, a pervasive sense of uncertainly has held the economy back. The British people have been through the virtual collapse of the financial system, the worst recession in living memory, large job losses, falls in real wages and a, at times harrowing, crisis in the euro area, our most important trading partner.”
In his speech, streamed live globally via the Bank of England and Bloomsberg News websites, Governor Carney added that Businesses in Nottingham and the East Midlands working in sectors including retail, manufacturing, biosciences and education are integral to the success of the UK economy.
And he showed he had further done his homework on his host city by name checking one of Nottingham’s most famous recent exports while addressing the need for an increase in output per hour rather than just new job creation.
He added: “Productivity growth has been anaemic and – remarkably – the UK is no more productive than it was back in 2005 — before Nottingham’s own Jake Bugg got his first guitar.”
Crossing the threshold
Governor Carney set out two 7% thresholds which the UK economy needs to cross to ensure that it can withstand the ‘inevitable bumps along the way to recovery’.
He renewed the pledge laid out in the Monetary Policy Committee’s monetary policy ‘forward guidance’ strategy to freeze interest rates at their record low level until unemployment falls below a threshold of at least 7%, with only a 1 in 3 chance of it reaching that level within three years, he warned.
In addition, he said the Bank of England has required banks to repair their balance sheets to meet a capital base of 7% by 2014 to ease the flow of credit.
He said: “Accordingly, I can confirm today that, for major banks and building societies meeting the minimum 7% capital threshold, the Bank of England will reduce the level of required liquid asset holdings. The effect will be to lower required holdings by £90 billion, once all eight major banks and building societies meet the capital threshold. That will help to underpin the supply of credit, since every pound currently held in liquid assets is a pound that could be lent to the real economy.”
Governor Carney’s appointment was approved by Her Majesty the Queen in November last year and he joined the Bank of England on July 1.
Canadian-born Governor Carney formerly served as Governor of the Bank of Canada and Chairman of its Board of Directors. This followed previous roles as Senior Associate Deputy Minister of Finance and Deputy Governor of the Bank of Canada and a thirteen-year career with Goldman Sachs in its London, Tokyo and Toronto offices.
A full copy of the Governor’s speech can be accessed via the Bank of England
Watch the video of the Governor’s speech