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Carney's New Battle Is Against Complacency

16/06/2014 11:25 BST | Updated 13/08/2014 10:59 BST

One of the Mansion House speeches from George Osborne and Mark Carney on Thursday was set to grab the headlines. George Osborne's speech about increased regulation of currency markets has been a long time coming, with plans to extend legislation over LIBOR fixings to cover other benchmarks.

As part of the changes, the market abuse regime that currently sees rules only cover insider dealing or market manipulation in securities and equities markets, will also start to incorporate foreign exchange and commodity markets. Comment pages and editorials in all the newspapers have been screaming for a cracking down on criminals in the City and this speech was due to push that issue to the fore.

However, the main focus of the evening turned out to be housing and not currency. Both Osborne and Carney have been under pressure in recent months to act to calm the housing market. They came together at Mansion house like an economic double act - admittedly more Cannon & Ball than Morecombe & Wise - to do so.

Unfortunately Osborne's plans are unlikely to help. He has decided to grant new powers to the Bank of England to cap mortgages. This can come via a maximum proportion of a loan-to-value on the property or, of course, limiting how much as a multiple of a borrower's earnings can be lent. Simple stuff. This legislation doesn't become law until next year, however, and so is about as useful as waiting on rain to put out a fire - damage continues to be done in the meantime.

The harder blow of the 1-2 punch came from Mark Carney. Whether he is sick of playing Mr. Nice Guy - all kitted out with painful football analogies and pop culture references - or if he believes that the dynamics of the housing market is up for debate is anyone's guess. What is clear is that, while Osborne went for the structure of the housing market, Carney went for the pricing.

In what are the Bank of England Governor's first, publicly hawkish comments he said that home owners and businesses should be prepared for interest rate rises and that the first of these "could happen sooner than markets currently expect".

He went on to say that the "there is already great speculation around the exact timing of the first rate rise and that decision is becoming more balanced". Whether this is a near term set up for some dissent against current low rates in next week's Bank of England minutes we will have to wait for Wednesday to see, although I would suggest that the odds of it happening have shortened dramatically.

He continued to emphasise that the pace of rate increases, when they are forthcoming, will be gradual and that they will top out below pre-crisis levels of 5%. All in all, what it does mark is a departure from the softly, softly rhetoric of the most recent quarterly inflation report; only 4 weeks ago.

I maintain that this speech was not particularly hawkish; but simply a departure from Carney's 'uber-dovishness' through his first year as BOE Governor. Balance is key, moving forward, another element that Carney emphasised slavishly last night.

If it's a ruse to calm the housing market it's an obvious one, and I am not altering my expectations that rates will not rise this year. Some complacency has entered these markets in recent months and the Bank of England has simply dug people in the ribs to re-affirm the point that this era of ultra-low rates will not last forever. The battle is ongoing.