Chief economist update: UK is now Bailey's baby

Bank of England (BOE) Governor Mark Carney's last days on the job would have gotten more press were it not for the more pressing concern of the coronavirus.

To be sure, there was nothing noteworthy in Carney's final monetary policy committee meeting at the helm of the British central bank. The BOE kept monetary policy unchanged, as widely expected, right on the eve of Brexit. Andrew Bailey will replace Carney as the BOE's head honcho starting on 16 March 2020.

Top-tier stats suggest that Carney is leaving the UK weaker than when he found it. When Carney assumed the position on 1 July 2013, UK GDP growth was clocked at 2.9% (in the year to the June 2013 quarter), it slowed to 1.3% (September 2019 quarter). The January 2020 MPC forecasts estimate growth to slow to 1.25% for the full-year 2019 before slowing yet again to 0.75% this year.

Similarly, Carney found UK headline inflation at 2.9% (June 2013) and is leaving with consumer price growth weaker at 1.3% (December 2019). The latest MPC forecasts show inflation slightly weakening to 1.25% at the end of 2020.

Then again, Carney's job was made difficult by Grexit (just before he was appointed BOE Governor), then Brexit, then US-China trade war, among others ... and now, the coronavirus scare.

In spite of these, Sterling's effective exchange rate is currently at the same level as Mark found it (notwithstanding the sharp depreciation post-Brexit referendum); the FTSE-100 index has gained by 18.4% since July 2013 to date; and, the unemployment rate has dropped from 7.7% (June 2013) to a 45-year low of 3.8%.

In his final BOE meeting, Carney remains hopeful, expecting "an immediate but orderly move, at the beginning of next year, to a deep free trade agreement between the United Kingdom and the European Union".

"The most recent indicators suggest that global growth has stabilised, reflecting the partial easing of trade tensions and the significant loosening of monetary policy by many central banks over the past year. Global business confidence and other manufacturing indicators have generally picked up. Domestically, near-term uncertainties facing businesses and households have receded. Surveys of business activity have picked up, quite markedly in some cases, and investment intentions appear to have recovered."

Still, until the UK-EU negotiations are finalised at the end of this year, the possibility of a no-deal divorce will continue to remain a nagging uncertainty for the UK economy.

Looks like incoming BOE Governor Andrew Bailey would have to hit the ground running.

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