Who Succeeds Mark Carney? Brexit Brings Uncertainty to the Bank of England

on Sep29
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The British government is hiring.

Requirements: A candidate who can keep markets calm, put up with criticism from politicians and deftly respond to an unprecedented economic event as Britain tears itself away from the European Union, while the rest of the world economy stutters.

Send applications to: Unknown.

The person who succeeds Mark Carney as leader of the Bank of England will have to brace for a challenge. When Britain voted to leave the European Union, Mr. Carney was quick to reassure the public that the central bank would support the economy as the country worked to sever the relationship. Then came three tortuous years of negotiations between London and Brussels over the terms of departure.

Mr. Carney, who was due to leave the job in 2018, agreed twice to extend his term as the Brexit process ground on, working toward monetary and financial stability as the rupture with Europe threatened the very economy he was aiming to keep steady.

But now, as Mr. Carney’s Jan. 31 departure approaches, the appointment of the bank’s next governor is entangled in the most political of issues: Who will be running the British government in a few months and managing Brexit?

“It’s part of a political mess that the U.K.’s managed to get itself into,” said Charles Goodhart, a professor at the London School of Economics, who has sat on the bank’s monetary policy committee. This mess, Professor Goodhart added, had made the appointment “much more complicated than it normally is.”

“Before the referendum, official economic projections intended to scare the country into voting Remain didn’t succeed,” Mr. King wrote in a Bloomberg opinion column last year. “It saddens me to see the Bank of England unnecessarily drawn into this project.”

Mr. Carney has defended the forecasts, maintaining that there are “lots of things to worry about in the event of a no-deal Brexit,” in which the country leaves the union without any agreement over the terms of its separation or its relationship with the European Union.

But Brexit-related criticism will make the job less attractive, said David Blanchflower, a professor of economics at Dartmouth College who has served on the bank’s monetary policy committee. “Who would take it and take all that flak that’s inevitably coming? Think of all the flak headed at Jay Powell.”

Mr. Powell, the Federal Reserve chair who was nominated by President Trump, has quickly become a target of Mr. Trump’s ire, most recently, for not cutting interest rates enough.

The next Bank of England governor may also face pressure from the government to help shore up the economy post-Brexit. “There will be a lot of pressure, political demands made,” said Adam S. Posen, the president of the Peterson Institute for International Economics and a former member of the monetary policy committee at the bank.

Whoever succeeds Mr. Carney will face an economy where investment has sunk, held back by the uncertainty surrounding Brexit, and growth that is still positive, but has weakened.

The Bank of England’s inflation target is 2 percent and Britain is at 1.7 percent. Inflation could soar if the pound, which has tumbled against the dollar amid Brexit uncertainty, hurtles lower after a no-deal departure. At the same time, the economy could take a hit from the shock of Brexit.

“That is the rock and a hard place” for a central banker, said Richard Portes, a professor at London Business School. “It’s not a pretty picture to any reasonable economist.”

The next governor will also be limited in his or her ability to respond to conniptions in the economy when global growth is slowing.

“There’s not going to be any good news,” said Mr. Posen at the Peterson Institute. “All the major central banks, all the major western economies are reaching a point where the next recession is going to be more than monetary policy alone can offset.”

The Bank of England’s benchmark interest rate is already low. It moved from 0.5 percent before the Brexit referendum in 2016 to 0.25 percent afterward. It has since risen to 0.75 percent. The Bank of England declined to comment, but Mr. Carney in recent weeks has pointed out the limits to what central banks can do.

“In the end, monetary policy can only help smooth the adjustment to the major real shock that an abrupt no-deal Brexit would entail,” Mr. Carney said in a speech at a meeting of central bankers at the end of August.

Against this backdrop, whoever takes on the job would have to be a great communicator, said Zsolt Darvas, a researcher at Bruegel, a think tank.

“It’s important how clearly the message goes through, how financial markets understand communications from the central bank,” Mr. Darvas said. “In an uncertain financial environment, it’s more important than in an ordinary economic downturn.”

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