The world’s oldest central bank is preparing for a changing of the guard with Andrew John Bailey set to become the bank’s Governor as of next month, replacing the incumbent Mark Carney.
The search for a new governor began almost 3 years ago in April 2017, but the process has taken a far longer time than expected due to ongoing Brexit uncertainty and two UK elections.
Mr Carney has held the post since 2013, extending his tenure twice due to political pressure aimed at stabilising the UK economy during turbulent Brexit negotiations.
However, Carney’s departure presents a series of questions, especially for eagle-eared traders attempting to pick up on ever-so-slight nuances in market commentary. There is also the issue of both internal and external bank policy.
For one thing, Carney was a big critic of the crypto revolution whereas Bailey is a supporter. In terms of his stance on interest rates, Bailey is considered a slowly-but-surely safe pair of hands that prefers incremental tweaking to sweeping change.
Given their dovetailing careers and close working relationship over the past decade, Carney has referred to Bailey as “the big sexy turtle” for his considered decision-making and likening his decision-making repertoire to that of mating Galapagos tortoises. Such a reputation is likely to mean Bailey will maintain the Bank’s current position on interest rates: slow and incremental increases alongside improvements in macroeconomic indicators such as GDP, unemployment and inflation. One of the biggest concerns in recent years has been the impact of Brexit on currency fluctuations and the value of the pound — as Brexit negotiations begin in earnest, the new Bank of England Governor will play a key role in determining how the UK picks its way out of the European weeds.
In terms of experience, Bailey does fall some way short of wielding the credentials to become the top dog at the Bank of England. By education and experience, he is not a macroeconomist and has not been a member of the monetary policy committee – a committee he must now chair 8 times per year to set UK interest rates.
However, his previous roles at the Bank include private secretary to the governor and leading the international economic analysis division in monetary analysis, a technical job that provides the information needed to set rates.
Timing is everything
Mr Bailey will take up the new role on March 16th, 2020 having previously served as the Chief Cashier of the Bank of England from January 2004 until April 2011 – a role which meant his signature appeared on all British banknotes – and serving as the current Chief Executive of the Financial Conduct Authority (FCA), Britain’s national financial regulator.
According to newspaper reports, Bailey secured his new role upon the recommendation of the Chancellor of the Exchequer, Sajid Javid – a man who has since vacated the position following a recent cabinet reshuffle.
Interestingly, Bailey secured the position despite being run close by London School of Economics director Dame Minouche Shafik, who would have been the first woman to hold the role in the bank’s 325-year history.
Other candidates that came close to pipping Bailey to the post were Shriti Vadera of Santander UK and Kevin Warsh, formerly a member of the US Federal Reserve board of governors.
Work to be done
One of Bailey’s first priorities will be to oversee and tie up an ongoing scandal relating to information leaks. Last year, it was revealed that sensitive market information was being leaked via audio feeds to traders, thereby proving early access to Mike Carney’s press conference remarks and creating an inherent financial advantage.
The bank admitted that one of its suppliers had misused the feed, and the issue was then referred to the FCA, which Bailey leads. This regulatory/market conduct issue is likely to figure among Bailey’s first tasks on his to-do list.
The most important role carried out by the new Governor, is, of course, setting interest rates. According to market analysts, Bailey is likely to provide a calming influence that deters speculation and unexpected rate changes. UK interest rates have remained flat since being slashed from almost 6% to 0.5% in 2009 as a result of the global financial crisis. The impact of such a significant decrease (which was mirrored by other G20 central banks) has been profound on various industries and sectors including corporate foreign exchange, property, manufacturing and banking.
Most of the imbalances that surfaced as a result of the GFC such as reliance on margin debt, a derivatives bubble, poor risk management and oligopolised banks have not been resolved while ultra-low interest rates across the G20 have created a form of dependency on state aid and cheap capital.
Although Bailey comes into his role with the UK economy growing at a steady 1% per year and inflation below the Bank of England’s revered 2% level, the new Governor will inherit a series of unresolved issues and the responsibility to steer the central bank through an entirely unprecedented digitally-enabled financial landscape.