Telegraph View: The Bank of England has little scope for conventional action in the event of anothe global crisis
Mark Carney, the Governor of the Bank of England, is a clever and accomplished man. But as an economic forecaster, he has failed to impress. His poor record of anticipating economic trends was underlined by official figures showing that inflation in December was 0.2 per cent. Yes, that was an 11 month high, but it is still so close to zero as to make a mockery of the Governorâ€™s assurance last year that Britainâ€™s experience of low and even negative inflation would be â€œtemporaryâ€.
Indeed, with oil prices approaching record lows and Chinaâ€™s economy slowing significantly, the global drivers of inflation suggest many more months of very limited price growth in Britain, stretching Mr Carneyâ€™s definition of â€œtemporaryâ€ still further. As a result, any increase in Bank Rate has been postponed, yet again. Mr Carney has more than once signalled that such a rise is approaching, only to retreat in the face of events the Bank failed to predict. The â€œemergencyâ€ rate of 0.5 per cent that has stood since 2009 is starting to feel like a permanent part of economic life.
Mr Carneyâ€™s habit of hinting at rate rises then changing his mind is not just bad for his reputation. Many households have based financial decisions at least partly on his guidance, taking out fixed-rate mortgages in anticipation of rate rises that never happened. Will they trust him again?
More troubling still is that Bank Rate is at rock-bottom even in what are relatively good times for the UK economy: growth is robust and employment high. If events in China, the Middle East or elsewhere bring about another global downturn, Mr Carney has little scope to give additional stimulus to the UK economy using conventional means. That is a worrying prospect.