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Carney Cut a Cautious Figure in His Second Select Committee Outing

13/09/2013 15:31 BST | Updated 13/11/2013 10:12 GMT

The last time that Dr Carney took a seat in front of parliament's Treasury Select Committee the atmosphere was amiable and chatty, the new Bank of England Governor made a particular point of addressing the various assembled MPs by their first names. To ram the bonhomie home, when the rather contentious issue of how much Carney would be paid for his time as Governor (£874,000 per annum) the matter was defused nimbly by Conservative MP David Ruffley who said that Carney would be paid 'considerably less than recent England football managers and likely to have more success'.

His appearance at this week's meeting was not entirely the antithesis of this, but it certainly represented a change. Unfortunately, at points during the questioning, Carney was his own worst enemy.

The premise of the meeting was to go over the details of the Bank of England's Quarterly Inflation Report which was released last month and, as a result, flesh out the Bank's thoughts on all manner of monetary policy and economic issues - jobs, housing, average pay, growth to name but a few.

Carney is a polished operator, of that there is no doubt. Similar committee meetings involving the previous Governor, Sir Mervyn King, would all too readily devolve into a patronising battle of intellectual superiority. So that we have avoided this to date during Carney's tenure is very welcome.

The issues surrounding 'forward guidance' are on one hand philosophical and, on the other, one of a lack of clarity as to what the phrase will mean in practice. The philosophical argument questions whether it is really 'forward guidance' if the parameters surrounding the measures can be changed as time goes on? All members of the MPC present - Carney, Fisher, McCafferty and Miles - agreed that the inflation 'knock-outs' surrounding the plan were there for a reason; to make sure that regardless of short-term inflationary shocks or a predictive howler by the Bank's forecasters, the policy will remain sound.

The other issue is that people aren't clear about what forward guidance means. People who work in the markets understand about SONIA curves, notions of loosening and tightening - because that's what we do. The question is whether the Finance Director of a machine tools company in Abergavenny or the owner of a hotel in Devon does as well.

Despite consistently pausing to clarify his own comments within the chamber, the Governor maintained that "in talking to businesses, our [the Bank of England's] experience in terms of surveys of household expectations has been that the message [of forward guidance] has been understood."

The proof will be in the lending pudding - if companies continue to borrow at these low rates, drive investment higher, increase productivity and, finally, increase their workforces then we can tick the 'they get it' box.

His view on the state of the economy was very much more cautious than many; short term pick-ups in data are welcome "but it's early days and it's a long way to get back to the potential of this economy."

Carney will have many more meetings like this his role as Governor, and I would wager that the reception he receives will remain tepid until we start to see the results of the Bank's policies manifesting themselves as sustained growth. Regardless of whether we all get the finer points of his 'forward guidance' strategy, there's no doubt that everyone understands that.