The charms of Ottawa

Carney will struggle to sustain BoE governorship

Mark Carney never said he would serve a full eight-year term as governor of the Bank of England. From the outset he said he'd go back to his native Canada after only five years. But the UK's central bank chief has a tough agenda for 2014. If things don't go his way, he might decide to go home even earlier.

Carney's signature policy innovation is forward guidance - a promise of continued minimal policy interest rates until the economy recovers. The goal is to keep bond yields down and the currency relatively weak. To date, he has fallen short. The yield on the 10-year gilt has risen from 2.3 to 2.9 per cent under Carney's watch. Sterling, on a trade-weighted basis, has risen five per cent.

The Canadian will be fine if Britain enjoys a steady, non-inflationary economic recovery. But if the recovery moves faster, the BoE's Monetary Policy Committee might be forced to increase rates some time in 2014. Carney can say, with technical accuracy, that the forward guidance he gave was always conditional. But his authority will be undermined.  Besides, the governor is only one of nine members of the MPC. His position could be destabilised by doubts and disagreement within this somewhat fractious group.

Then there is housing. The most recent Halifax survey says UK residential property prices climbed 7.7 per cent over the last year. The BoE's Financial Policy Committee, which Carney chairs, has expressed concern about this crucial and troubled market. The Bank of England is also withdrawing some cheap mortgage funding. But it all could easily go wrong. Investors will run scared if house prices keep rising, while politicians will be horrible to Carney if house prices start to fall.

Under-fire British civil servants can often look for support among well-connected old friends. Carney is an outsider. His appointment may have irritated many insiders who never saw any need to bring him in - with his high salary and generous housing allowance. If the Bank of England looks lost, he may find himself friendless. At that point, Carney may wonder if his heart is in his London job. His former home, Ottawa, could look like a much nicer place to raise a family.