By James Trescothick, Chief Trading Educator at Stratton Markets
Hands up for continuity. Let's face it, it's something we all like. Something we all particularly need. Going back to when we were children, we had this need for familiarity as it made us feel safe and secure.
We have carried on that same need into our adult life. Speaking for myself, and I have no doubt there are many other people out there, who would agree on the importance of having a "local" (for those non-British individuals a "local" is basically a pub you always go to). A "local" is like a fortress of solitude where we can show our face on a regularly basis and always be welcome and greeted with comfort.
So, when you are about to go through a time that is full of uncertainty and unknown, familiarity in some way or form is the perfect medicine to take. It will give you that warm hug when you feel like you don't know what the overall outcome will bring.
So, with Mark Carney's confirmation that he will
indeed stay on as Governor of the Bank of England, till January 2020, is there
really any surprise that as the UK literally stands on the edge of the unknown,
those in positions of power have agreed to keep a familiar face at the forefront
of one of world's most prestigious Central Banks?
But, will it really make a difference and help steady the ship during what will be wave after wave of volatility?
Well, for starters Mark Carney has never been a man to hide in the shadows. Having spent 13 years with Goldman Sachs he went on to become the deputy at the Canadian Department of Finance. He then went on to become first the Deputy Governor and then the Governor of the Bank of Canada. As governor he really made his mark as he was credited as being the major driving force in helping Canada avoid the worst impacts of the 2007 financial crisis.
Then, he went on to become the first non-Briton to become the Governor of the Bank of England.
Under his watch we've seen the aftermath of the Brexit vote which caused UK inflation to skyrocket. All of which also lead to the BOE to raise interest rates for the first time in ten years in 2017, followed by another rate hike in August 2018.
Never afraid to share his opinion, Mark Carney has frequently spoken of the potential negative affect the Brexit will have on the UK economy, where he has been attacked by some Brexit activists going against him for trying to influence the vote back in 2016 and spread fear.
However, when Chancellor Philip Hammond addressed MP's about Carney's extension to the end of January 2020, he said that this appointment would "help support continuity" for the UK economy during "a turbulent period".
Or is it just a facade in the way of the barrenness that surrounds the economic climate of the moment?
But there are those who will argue that really Carney's extension is more of a political move by a government that has faced several resignations of key players, and in order to buy themselves more time to find a replacement for the role. And who would want to take the role of Governor of the Bank of England, in the current climate, where there is no real indication on what will happen when the divorce between the UK and the EU is settled, in March 2019. Will there be a deal, or won't there? No one - and I mean no one - actually knows.
There is no doubt, Carney - like Draghi and Powell - can indeed move the market. But for being able to offer stabilization for the sterling, that would be near impossible.
After seeing the BOE raising rates in August 2nd, the GBP bulls stayed silent and inactive while the sterling remained under pressure. This means both Carney and his fellow BOE members have no power currently to influence the currency's direction. The market at this time is not too focused upon what actions the BOE may take with interest rates or monetary policy. However, they are transfixed by the latest political setback the UK government may face, or what obstacle remains or is removed from the ongoing UK and EU Brexit negotiations.
Better the devil you know
Carney is not at the negotiating table with the EU, so for when it comes to influencing the current market volatility for the GPB, he's pretty much powerless. What he can do of course is continue to make statements about the dangers of the UK's exit from the EU, but we've heard that plenty of times already, so really his talk of doom and gloom is old news.
At the end of the day, Mark Carney staying on will not help support the GBP stability. Not that it's his fault, he simply isn't able to do so with a market addicted more to political developments than economic ones. As good as he is, this move is to support the current UK government and, as they say, it's often a case of "better the devil you know".
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By James Trescothick, Chief Trading Educator at Stratton Markets
