Monetary policy not to blame for sharper disparities in inequality, Carney says

Updated: 

Bank of England governor Mark Carney said Britain is facing "sharper disparities" in inequality despite wider global growth, but that monetary policy is not to blame.

In his first major speech since the week following the Brexit vote, Mr Carney said many citizens in advanced economies like the UK are facing heightened uncertainty despite "aggregate" global progress, which is putting public support for open markets "under threat".

"The picture in the UK is complex but in general suggests relatively stable but high levels of overall inequality with sharper disparities emerging in recent times for the top 1%.

"When combined with low growth of incomes and entrenched in intergenerational inequality, it is no wonder that many question their prospects," he said in a speech delivered at the Liverpool John Moores University on Monday.

He noted that millennials are some of the hardest hit by income and wealth inequalities.

Millennials are earning on average £8,000 less during their 20s than their predecessors, while those over 60 have seen their incomes rise at five times the rate as the rest of the population as a whole since 2007.

But that has followed in the footsteps of a financial crisis which has stripped productivity levels across the country. Nine years after the crisis, UK productivity levels are 16% lower on aggregate.

The governor also used the speech to criticise aspects of globalisation and free trade.

He said: "Globalisation is associated with low wages, insecure employment, stateless corporations and striking inequalities.

"For free trade to benefit all requires some redistribution.

"We need to move towards more inclusive growth where everyone has a stake in globalisation."

But Mr Carney has said that monetary policy has been the salvation, not the illness, of the UK economy.

He has called for a more "inclusive" global growth model, but went on to defend the Bank's monetary policy measures for helping to support growth.

The Bank has embarked on controversial measures including ultra-low interest rates and quantitative easing, since the crisis, having cut rates to a record low of 0.25% in August as part of a post-Brexit stimulus package.

"Monetary policy will continue its good work as the UK economy adjusts to new opportunities with Europe and the rest of the world.

"In the end, monetary policy isn't a spectre but a friendly ghost."

He denied claims that monetary policy tools like the Bank's quantitative easing programme (QE), which sees the central bank print money to buy Government bonds, have disproportionately hurt savers, but aided the asset rich.

He said: "Has monetary policy robbed savers to pay borrowers? Has the MPC been Robin Hood in reverse? In a word, no.

"That's in part because, to a large extent, the thrifty saver and the asset rich holder are often one and the same."

Mr Carney noted that just 2% of households have deposits over £5,000, few other financial assets and do not own a home. It means that the "vast majority" of savers who lost out from lower interest rates have benefited from higher asset prices, including the recovery of house prices.

He credited monetary policy for having helped create 2.5 million jobs, increase wages 17%, and raising real gross domestic product (GDP) by 15%.

"People haven't been made poorer; rather across major income and wealth categories they are better off, and at the margin, surprisingly, income inequality has fallen a bit." 

But anxieties are still high, because real wages are still below where they were 10 years ago, and productivity is still lagging.

Mr Carney said governmental policies will be key in boosting UK prosperity. 

"The Chancellor's recent Autumn Statement begins the process of rebalancing policies. While fiscal prudence will continue, the degree of fiscal drag will be reduced somewhat, and major investments in the structural drivers of productivity."