Mark Carney, the outgoing Governor of the Bank of England, today
gave evidence to the House of Lords Economic Affairs Committee.
There were no specific mentions of TCFD or recommendations and
taxonomies of green activities. However, towards the end of the
session, there was some discussion on the implications to the
economy of net-zero. Replying to committee chairman , Mr Carney said the BoE
was in the process of developing three scenarios: 1. A smooth
transition to net-zero by 2050; 2. A delayed and more abrupt
transition; 3. Business as usual, with no adjustment to climate
policy. Those scenarios would be released in April. He was
confident that the economic outcomes would be worse if nothing
was done and better with a smooth transition. Transition risks
and opportunities were becoming one of the ways the financial
services sector was valuing assets and companies.
At the beginning of the meeting, asked about the long-term
consequences to the economy of persistently low-interest rates.
Mr Carney said interest rates were likely to stay low for the
foreseeable future and that would lead to “search for yield” and
encourage risk-taking, which was as intended. One of the
positives of a low-interest-rate environment was that it added
fiscal capacity. Debt servicing costs were expected to be low for
a while.
asked to what extent QE
and low-interest rates had paved the way for speculative bubbles.
Mr Carney said QE had succeeded in boosting the economy. He
supported regular reviews of monetary policy, but the bar for
change had been set very high.
asked
about the poor performance of UK productivity. Mr Carney said
there had been some reordering of the economy due to
technological advances, with an elongation of the “distribution
of productivity performance.” More recently, there had been
uncertainty caused by the Brexit process. The good news was that
many of these issues were in the past.
asked about economic growth
and how the Bank should approach the pressure on inflation. Mr
Carney said there was some slack in the economy. Some stimulus
should be provided to bring the economy back to its trend rate of
growth, although the Budget on March 11 could provide stimulus.
Replying to , he said the biggest risks
to financial stability were, globally, issues in Hong Kong and
China; domestically a series of risks around Brexit, which had
been broadly addressed; it was important to vigilant on household
on corporate debt, and it was essential to get the Libor
transition right. The risks caused by the coronavirus were
significant but containable.
He told it appeared the
process of ring-fencing had affected the availability of credit,
particularly the mortgage market.
He said household debt was decreasing and service levels were
low, with under one per cent of households with debt/service
ratios over 40%. After the 2016 referendum, the MPC had made a
judgement that real incomes would go down and that could be taken
in two ways: in slightly higher inflation or lower employment.
The inflation route had been considered preferable.
asked about the
effect of Brexit on the financial services sector. Mr Carney said
in general the UK agreed with the structure of EU rules. There
were exceptions, such as the risk margins in the insurance
sector; smaller, non-international banks would have differences
in their capital regimes; etc. In regard to wholesale financial
services, “we would grow financial stability rules over time.” He
added that the equivalence regime in the EU was relatively
unstable. After Brexit the UK would have more flexibility and
mutual supervisory regulations with other countries.
asked if would be
possible to have a bilateral arrangement between the UK and the
EU without the interests of New York being a factor? Mr Carney
thought other interests would have to be taken into account
during negotiations. As the leading financial centre in the
world, it was important London remained open to as many
jurisdictions as possible. That would not change in the
foreseeable future.
