17/07/2013 12:56 BST | Updated 17/07/2013 13:31 BST

Is Mark Carney's Hawkish Bank Of England Turning Off The Money Printers For Good?

Mark Carney, Governor of the Bank of England, attends a monetary policy committee (MPC) briefing on his first day inside the central bank's headquarters in London.

City birdwatchers were on the lookout for the Bank of England's doves and hawks today.

All eyes were focused on what new governor Mark Carney would do, after swooping in from Canada to take over from the owlish Mervyn King this month.

On publication of the meeting minutes from July 4, attention flocked around the 9-0 decision to avoid injecting more money into the economy as an extra boost of stimulus beyond the £375 billion already shoved out of the door.

By printing more money as the doves would want, the Bank would help boost the supply of credit and keep interest rates low. In short, great news for UK families with mortgages.

However, the Bank agreed to keep interest rates at their historic low of 0.5%, which had been held that low since 2009. Carney's decision would have made for bleak news for savers.

Hawks would be more concerned by the threat of inflation, which just this month soared to 2.9%, as it would push up the cost of living, hitting the poor by wearing down their benefits and their wage packets.

Carney cheerleaders welcomed the 9-0 consensus as an early win, suggesting Carney had knocked heads together and won around the "dovish" members, who had previously argued for more direct intervention and stimulus to get the economy going.

RBS analyst Ross Walker said the 9-0 vote was a “shock decision” due to its unanimity, with dovish members guilty of a "simply bizarre capitulation” to Carney. Despite this, he said the committee had a “clear dovish bias”.

The general message from the Bank's MPC committee seemed to be: steady as she goes. Carney was unlikely to rock the boat in his first meeting with the assembled officials, especially when he needed to keep an eye on how allies like the US were doing with their plans to keep stimulating the economy, or to wind down the direct support.

BBC Economics Editor Stephanie Flanders argued the Bank was keen to avoid being rushed into turning the QE money taps off by the US Federal Reserve, whose chairman Ben Benanke has signaled plans to wind up its $85 billion monthly stimulus programme this year, with a view to halt it entirely by mid-2014.

But speaking to the Huffington Post UK, two former members of the Bank’s Monetary Policy Committee argued that the vote shouldn't be overinterpreted. The real important meeting is in August, when Carney has to decide how he'll put out forward guidance on what the Bank will do, for the benefit of the markets, and unveil his masterplan.

Ex-MPC member and "ultra-dove" Adam Posen, who is now president of the Peterson Institute for International Economics in Washington DC, said the 9-0 vote was a "mistake", aided by the "misplaced" support from current dovish committee members.

“I think it is a mistake. Even with some better UK economic news, the global outlook is weaker, and labour force numbers are far from full employment. There is no inflation threat if it peaks at 2.9% due to oil, as it has.

“The doves’ change in votes strikes me as at best a misplaced belief in the utility of forward guidance, and at worst a disregard for their own independence of votes. Unless there is something more than a forecast announcement planned in August, they should not be deferring to the Governor in this way, new or not. If anything, they know the UK macroeconomic picture better than he can at this point."

Posen's warning is that Carney and the Bank officials shouldn't treat the economic recovery as safe and secure.

He adds: “Now there will be a big tent substituting cheap talk for purchase action, which will allow more members to claim they are dovish. But the vote was 6-3 against more QE and now is 9-0 against. So that isn't dovish in reality.”


Another ex-MPC member Professor Danny Blanchflower, who now teaches at Dartmouth University, was a fervent supporter of printing more money while on the committee. He argues that Bank officials could still return to it if the economy takes a turn for the worse. For the moment, they're watching how things are developing.

“Most of the markets and these commentators are idiots and talking bullshit” says Professor Danny Blanchflower.

“Bernanke said there is no pre-set path and that his plan was data-contingent. The Bank of England's doves have not capitulated, that's just people talking who've no idea how a committee of nine works.”

The committee's unanimous backing for holding off on further money printing was merely a "display of unity" with their new boss, Blanchflower argues, adding: “I'd have voted with the governor to show I'm with him.”

“The Bank of England is sitting, waiting to see what happens and holding. It takes a while, even if you want to do something different, to work out how you'd do it. They're going to respond to it differently at the August inflation report."

The Bank has avoided injecting more money into the economy for the last few months, even back under Mervyn King's governorship. Tempting as it is to take it as a sign the Bank felt nothing extra needed to be done to speed the economic recovery along, it can also signal that there was so little that they could do beyond a binary yes-no to more quantitative easing.

Much of Carney's plans will have to be developed in time for August 7, the date of the Bank's upcoming Inflation Report. The Chancellor has asked him to flesh out how he would use "forward guidance" and consider more ""unconventional" measures to stimulate the economy, which inevitably will require time to build a consensus and work out how best to do.

"They need time to think through such plans about 'how are we going to do this?' says Blanchflower.

As Blanchflower says, Carney's plans would no doubt hinge on economic data. If the economy is still spluttering over the coming months, the governor may have to take some new and radical action.

Depending on events, the seemingly hawkish Canadian could turn out to be a dove.