Who Succeeds Mark Carney? Brexit Brings Uncertainty to the Bank of England

The British government is hiring.

Requirements: A candidate who can keep markets calm, put up with criticism from politicians and deftly respond to an unprecedented economic event as Britain tears itself away from the European Union, while the rest of the world economy stutters.

Send applications to: Unknown.

The person who succeeds Mark Carney as leader of the Bank of England will have to brace for a challenge. When Britain voted to leave the European Union, Mr. Carney was quick to reassure the public that the central bank would support the economy as the country worked to sever the relationship. Then came three tortuous years of negotiations between London and Brussels over the terms of departure.

Mr. Carney, who was due to leave the job in 2018, agreed twice to extend his term as the Brexit process ground on, working toward monetary and financial stability as the rupture with Europe threatened the very economy he was aiming to keep steady.

But now, as Mr. Carney’s Jan. 31 departure approaches, the appointment of the bank’s next governor is entangled in the most political of issues: Who will be running the British government in a few months and managing Brexit?

Under former Prime Minister Theresa May, Britain’s government started the search for a successor earlier this year. But there was no decision before Mrs. May lost her way in the Brexit battle and was succeeded by the current prime minister, Boris Johnson.

The Treasury put a call out for applicants in April and maintains that it expects to make an appointment in the fall. That choice would require the prime minister’s blessing and then a review by a parliamentary committee. But Parliament continues to be torn by Brexit, leaving little opportunity for any significant committee work before the departure date of Oct. 31.

Mr. Johnson’s tactics to push on with Brexit — even expelling members of his own party who disagreed in the last few weeks — has roiled all the political parties, with some members of Parliament calling for a new election. This has added more uncertainty to the selection of the bank chief and raised the question of whether the current government will even be in charge.

The parliamentary committee responsible for scrutinizing the appointment wrote to the chancellor of the Exchequer on Sept. 18 seeking confirmation of whether the appointment would be going ahead as planned. No response has been posted on the committee’s website.

“It’s part of a political mess that the U.K.’s managed to get itself into,” said Charles Goodhart, a professor at the London School of Economics, who has sat on the bank’s monetary policy committee. This mess, Professor Goodhart added, had made the appointment “much more complicated than it normally is.”

Whoever takes on the role will be tasked with targeting inflation, regulating banks and responding to whatever fallout Brexit may bring.

“We’re asking our governor to be an expert in monetary policy and politics and communications, but also financial regulation and managing financial risk,” said Ed Balls, a former member of Parliament who was chief economic adviser to the Treasury in the late 1990s when the government made the bank independent and gave it control over monetary policy. “It takes an almost superhuman person to be able to play all these different roles.”

The next governor will have little, if any, time to warm up to the job. Mr. Carney has insisted he is leaving on Jan. 31.

During his tenure, Mr. Carney, who had previously run Canada’s central bank, has been a steadfast counterpoint to the politicians proclaiming the upsides to Brexit.

Mr. Carney told a parliamentary committee in early September that the bank expected the economy to shrink 5.5 percent in the worst-case scenario for Brexit. Last November, the bank estimated a more severe contraction of 8 percent, but the extension of the Brexit deadline ameliorated that.

At the same time, his warnings about a disorderly Brexit have also attracted accusations of scaremongering. Mr. Carney’s predecessor, Mervyn King, who declined to comment for this article, has said the bank was too dire in its predictions.

“Before the referendum, official economic projections intended to scare the country into voting Remain didn’t succeed,” Mr. King wrote in a Bloomberg opinion column last year. “It saddens me to see the Bank of England unnecessarily drawn into this project.”

Mr. Carney has defended the forecasts, maintaining that there are “lots of things to worry about in the event of a no-deal Brexit,” in which the country leaves the union without any agreement over the terms of its separation or its relationship with the European Union.

But Brexit-related criticism will make the job less attractive, said David Blanchflower, a professor of economics at Dartmouth College who has served on the bank’s monetary policy committee. “Who would take it and take all that flak that’s inevitably coming? Think of all the flak headed at Jay Powell.”

Mr. Powell, the Federal Reserve chair who was nominated by President Trump, has quickly become a target of Mr. Trump’s ire, most recently, for not cutting interest rates enough.

The next Bank of England governor may also face pressure from the government to help shore up the economy post-Brexit. “There will be a lot of pressure, political demands made,” said Adam S. Posen, the president of the Peterson Institute for International Economics and a former member of the monetary policy committee at the bank.

Whoever succeeds Mr. Carney will face an economy where investment has sunk, held back by the uncertainty surrounding Brexit, and growth that is still positive, but has weakened.

The Bank of England’s inflation target is 2 percent and Britain is at 1.7 percent. Inflation could soar if the pound, which has tumbled against the dollar amid Brexit uncertainty, hurtles lower after a no-deal departure. At the same time, the economy could take a hit from the shock of Brexit.

“That is the rock and a hard place” for a central banker, said Richard Portes, a professor at London Business School. “It’s not a pretty picture to any reasonable economist.”

The next governor will also be limited in his or her ability to respond to conniptions in the economy when global growth is slowing.

“There’s not going to be any good news,” said Mr. Posen at the Peterson Institute. “All the major central banks, all the major western economies are reaching a point where the next recession is going to be more than monetary policy alone can offset.”

The Bank of England’s benchmark interest rate is already low. It moved from 0.5 percent before the Brexit referendum in 2016 to 0.25 percent afterward. It has since risen to 0.75 percent. The Bank of England declined to comment, but Mr. Carney in recent weeks has pointed out the limits to what central banks can do.

“In the end, monetary policy can only help smooth the adjustment to the major real shock that an abrupt no-deal Brexit would entail,” Mr. Carney said in a speech at a meeting of central bankers at the end of August.

Against this backdrop, whoever takes on the job would have to be a great communicator, said Zsolt Darvas, a researcher at Bruegel, a think tank.

“It’s important how clearly the message goes through, how financial markets understand communications from the central bank,” Mr. Darvas said. “In an uncertain financial environment, it’s more important than in an ordinary economic downturn.”

The daunting prospect of this political caldron has already put some candidates off, according to Mr. Portes, who counts Mr. Carney as a friend. “Some people I know did not apply,” Mr. Portes said. “They thought, ‘Jesus, what do we want to get into that for?’ ”

Indeed, Mr. Carney, often described as a steely personality, told Sky News in April that the job had proved “stressful.”

Whoever takes on the challenge would have to be “deeply committed to the U.K’s well-being” or “have an unbelievable desire for a challenge,” Mr. Posen said. “This is not as attractive a job as when they offered it to Carney six or seven years ago. Anybody who’s already been governor of a central bank probably doesn’t want the headache.”

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