LONDON – Bank of England Governor Mark Carney hit back on Tuesday at critics of forward guidance, his centrepiece policy, saying economic recovery would be at risk if the BoE had not spelt out how long it would keep interest rates at record lows. In a sometimes-tetchy session with lawmakers - which contrasted with the warm reception at his first appearance earlier this year - Carney also took aim at Britain's official statistics and expressed deep concern at reports Royal Bank of Scotland had mistreated small businesses. Carney took over the BoE in July, and a month later the bank said it would not consider raising interest rates until unemployment fell to 7 percent. The bank said at the time that might take three years. Since then, growth has picked up speed and unemployment has fallen faster than the BoE had expected, adding to doubts about how long the interest rate pledge will last. Carney faced barbed questions from members of the Treasury Committee in Britain's lower house of parliament. One legislator from the same Conservative party as finance minister George Osborne, who appointed Carney, suggested forward guidance was "dead on arrival". Carney called that a "total failure of logic". He said markets would be factoring in a much earlier interest rate hike if the BoE had not spelt out its plan. "We are not seeing an adjustment in short-term expectations of interest rate moves.... Historic relationships would have fully priced in interest rate moves given the strength of this recovery right now." Another legislator from the opposition Labour Party accused him of putting too favourable a gloss on Britain's economic performance and of cosying up to Osborne, something Carney said left him "more than mildly offended". Carney also said he had no political ambitions in his native Canada. That may not end speculation that he could change his mind later - last year, he denied being interested in becoming governor of the BoE. Carney stressed that the 7 percent used in unemployment forecasts would not compel the Bank to raise rates. "Seven percent is a threshold, not a trigger," Carney said. Unemployment reached 7.6 percent in the three months to September. Earlier this month, the BoE said it could fall to 7 percent as soon as the fourth quarter of next year, a big chance from its forecasts of August. The pace of Britain's recovery this year has surprised even the government and made it the pace-setter among other advanced economies around the world. Carney sounded a note of caution, saying the recovery was starting from a low base. He also said the BoE's job of measuring the health of the economy was being hampered by sub-standard official data, especially on business investment and debt levels. "I was much more comfortable with the data in Canada," said Carney who was governor of the Bank of Canada before taking over the British central bank in July. Asked about Britain's housing market recovery, Carney said it was likely that prices would continue to rise strongly. "There is momentum in the housing market. We expect that near-term momentum will be sustained for a period before ultimately house price growth will be more consistent with normal income growth," he said. Carney also said two reports published on Monday into the state-owned RBS's treatment of small businesses were "both deeply troubling and extremely serious", and that further investigations were needed to assess the scale of the problem. Carney said Britain's Financial Conduct Authority - a regulator separate from the BoE - needed to conduct an inquiry into suggestions RBS closed down viable small businesses too quickly in order to profit from a firesale of their assets. — Reuters
