Departing Bank of England governor sets his sights on post-carbon economy

Mark Carney finished his final briefing as governor of the Bank of England on Thursday with an eye to the future – his own and that of the planet. After 12 years at the helm of two G7 banks, Mr Carney leaves to become a UN-appointed envoy on climate change in March. Appearing in the ornate setting of the Bank of England for his last media briefing, he explained how the institutions could play a crucial role in fighting climate change. In December the bank announced that Britain’s top lenders and insurers should in 2021 be tested together for the first time to quantify the potential financial hit from climate change to their businesses. The results of the test are due to be published in April 2021 and in the meantime, the bank has asked for industry feedback. Mr Carney said the feedback was continuing, and that major banks and insurers are “very engaged” with these new stress tests. He said that the December announcement has prompted other central banks to follow suit. “It’s important to emphasise that these are not ‘gotcha’ stress tests," Mr Carney said. "They are not stress tests that lead to a change in the capital ratios of the banks or the risk-related assets of the institutions. "They are really stress tests about the strategy of the institution, given the rising physical consequences of climate change." Mr Carney will step down from his role at the bank in March to become the UN’s special envoy for climate action and finance, replacing Democratic US presidential candidate Michael Bloomberg. The departing BoE governor has also been appointed by British Prime Minister Boris Johnson to be his finance adviser for Cop26, the UN climate chance conference to be held in Glasgow in November. “We expect and know that a number of other central banks are going through similar exercises in their own way to make sure their systems have strategies that are resilient,” he said. Shining a light on risks of climate change to the financial sector may be one of Mr Carney’s greatest achievements as governor. But on domestic issues such as Brexit, he was sometimes seen as a polarising figure. The bank’s monetary policy meeting on Thursday came at a pivotal time for Britain’s economy, only a day before the UK was due to leave the EU. “UK is entering a decade of profound structural change,” Mr Carney said. “New trading arrangements will be struck, a new immigration policy will be introduced, major initiatives will be likely on infrastructure and regional develop and the transition to a low carbon economy.” He said he had no regrets as far as monetary policy was concerned during his tenure as governor, but Mr Carney was not popular in all circles. He has been criticised by some as being "too political” and part of “project fear” when it came to forecasting the economic impact of Britain’s departure from the EU. Unusually for a Bank of England governor, he has experience in leading another central bank, the Bank of Canada, which he steered through the global financial crisis. Since holding the BoE's top job, he has in some circles earned the reputation of being ‘the unreliable boyfriend’, because of his tendency to moot interest rate rises and cuts before pulling back. Before Thursday’s announcement by the bank to hold interest rates at 0.75 per cent (7-2 vote), the market was split on whether they would be cut or maintained. Critics say Mr Carney he tends to confuse the City and many are sceptical of his flagship forward guidance policy, which he introduced in 2013. The guidance is supposed to give an indication of when the committee would raise rates, but under Mr Carney it has often not done this. But on Thursday he staunchly defended the policy, saying it was “a key part of the armoury” and that “the jury was in” that these forecasts work. Having inherited an economy facing stagnant growth after the Brexit referendum, in Mr Carney’s tenure of six and half years, his committee tweaked interest rates three times over 69 meetings. The first shift was a quarter-point cut to new record lows of 0.25 per cent back in August 2016, but since there have been two quarter-point increases. Such low interest rates became the new normal. On Thursday, the bank was a long way off its inflation target of 2 per cent, hitting 1.4 per cent in the final quarter of 2019. Mr Carney said that a "moderate tightening" of monetary policy may be required to meet its inflation target in the future. His decision not to cut rates on his last meeting may cause a headache for his successor, Andrew Bailey, who may have to do so to keep inflation high enough as he assumes his new role.

Departing Bank of England governor sets his sights on post-carbon economy

Mark Carney says central banks must do more to tackle climate change