Mark Carney is gambling with his credibility

Risky, risky, risky.

In a dramatic break with history, at his first meeting as Governor,  Mark Carney persuaded the Bank of England’s, (BOE), Monetary Policy Committee, (MPC), to issue what amounted to forward guidance on the path of future monetary policy.

The key sentence in the statement issued by the MPC was, "The, (recently observed), significant upward movement in market interest rates, would, however, weigh on that outlook; in the Committee’s view, the implied rise in the expected future path of Bank Rate was not warranted by the recent developments in the domestic economy".

There are arguments against, and arguments in favour of forward guidance. Against the guidance ties the committee’s hands and will make it look stupid if it subsequently has to adapt it too quickly, (almost by definition), and if it does have to change the message, that’s going to lead to ever-diminishing credibility for future guidance, i.e. the market will remember the committee’s ‘mistakes’ and not believe future guidance.

For: it represents "costless" intervention, in the narrow sense that the central bank doesn’t have to actually DO anything right now and, if the guidance does have to change direction later, then that will probably be because the initial guidance has done its work - having lead to the desired economic adjustment.

The substance of today’s messages from both the BOE and the European Central Bank, (ECB), which used a similar tactic, was that they had seen their yield curves steepen dramatically since the market became obsessed with "tapering" in the US-the process by which the Fed may wind down its programme of Quantitative Easing, and that they could neither understand this phenomenon nor stand idly by and watch it happen. To paraphrase their message- "never mind the US, or the Fed, look at our economies and ask yourself, why would you expect us to raise rates any sooner now than you did two months ago". Fair enough and, in the ECB’s case, a very good point.

However, I think Carney has started his encumbency with a very risky gamble. Whilst the Eurozone economy has been flatlining and boasts economies best described as ranging from zombie to plunging, the UK economic data has recently given us some distinctly pleasant surprises - the latest being the Services Purchasing Managers’ Index-representing a massive sector of the economy- and quite a robust housing market recovery. Let us also not forget that UK inflation remains stubbornly high and shows no real tendency to fall. Maybe not today, maybe not tomorrow, but probably by Christmas, I think the BOE will have to subtly change today’s attempt at guidance and investors who bought gilts on the back of today’s BOE statement may come to regret that before long.

Bank of England Governor, Mark Carney. Photograph: Getty Images

Chairman of  Saxo Capital Markets Board

An Honours Graduate from Oxford University, Nick Beecroft has over 30 years of international trading experience within the financial industry, including senior Global Markets roles at Standard Chartered Bank, Deutsche Bank and Citibank. Nick was a member of the Bank of England's Foreign Exchange Joint Standing Committee.

More of his work can be found here.

Getty Images.
Show Hide image

Today's immigration figures show why the net migration target should be scrapped

We should measure different types of migration separately and set targets that reflect their true impact.

Today’s net migration figures show, once again, that the government has raised expectations of tackling migration and failed to deliver. This is a recipe for disaster. Today’s numbers run far in excess of 300,000 – three times over what was pledged. These figures don’t yet reflect the fallout from Brexit. But they do show the government needs to change from business as usual.

It has been the current strategy, after all, that led the British public to reject the European Union regardless of the economic risks. And in the process, it is leading the government to do things which err on the side of madness. Like kicking out international students with degrees in IT, engineering or as soon as they finish their degrees. Or doubling the threshold for investor visas, and in the process bringing down the number of people willing to come to Britain to set up business and create jobs by 82 per cent. Moreover, it has hampered the UK’s ability to step up during last year’s refugee crisis - last year Britain received 60 asylum applications per 1,000 people in contrast to Sweden’s 1,667, Germany’s 587 and an EU average of 260.

The EU referendum should mark the end for business as usual. The aim should be to transition to a system whose success is gauged not on the crude basis of whether overall migration comes down, irrespective of the repercussions, but on the basis of whether those who are coming are helping Britain achieve its strategic objectives. So if there is evidence that certain forms of migration are impacting on the wages of the low paid then it is perfectly legitimate for government to put in place controls. Conversely, where flows help build prosperity, then seeing greater numbers should surely be an option.

Approaching immigration policy in this way would go with the grain of public opinion. The evidence clearly tells us that the public holds diverse views on different types of migration. Very few people are concerned about investors coming from abroad to set up companies, create jobs and growth. Few are worried about students paying to study at British universities. On the other hand, low-skilled migration causes concerns of under-cutting among the low paid and pressure on public services in parts of the country that are already struggling.

The first step in a new approach to managing migration has to be to abolish the net migration target. Rather than looking at migration in the aggregate, the aim should be to measure different types of migration separately and set targets that reflect their true impact. In the first instance, this could be as simple as separating low and high skilled migration but in the long term it could involve looking at all different forms of migration. A more ambitious strategy would be to separate the different types of migration - not just those coming to work but also those arriving as refugees, to study or be reunited with their families.

Dividing different flows would not only create space for an immigration policy which was strategic. It would also enable a better national conversation, one which could take full account of the complex trade-offs involved in immigration policy: How do we attract talent to the UK without also letting conditions for British workers suffer? Should the right to a family life override concerns about poor integration? How do we avoiding choking off employers who struggle to recruit nationally? Ultimately, are we prepared to pay those costs?

Immigration is a tough issue for politicians. It involves huge trade-offs. But the net migration target obscures this fact. Separating out different types of immigration allows the government to sell the benefits of welcoming students, the highly skilled and those who wish to invest without having to tell those concerned about low skilled immigration that they are wrong.

Getting rid of the net migration target is politically possible but only if it is done alongside new and better targets for different areas of inward migration – particularly the low-skilled. If it is, then not only does it allow for better targeted policy that will help appease those most vocally against immigration, it also allows for a better national conversation. Now is the time for a new, honest and better approach to how we reduce immigration.

Phoebe Griffith is Associate Director for Migration, Integration and Communities at IPPR