Bank of England's Carney warns of strains from globalization

LONDON (Reuters) - Bank of England Governor Mark Carney warned on Monday that the openness of the world economy is endangered by growing frustration among many voters who are angry about a “lost decade” for their earnings.

Bank of England Governor Mark Carney delivers the Liverpool John Moores University's Roscoe Lecture, at the BT Convention Centre in Liverpool, Britain December 5, 2016. REUTERS/Peter Byrne

In a speech on the challenges on globalization, which have come to the boil in voting booths in the United States and Britain, Carney said many people in rich economies linked the lowering of barriers to trade and investment with low wages, insecure jobs, rootless companies and glaring inequality.

“The combination of open markets and technology means that returns in a globalized world amplify the rewards of the superstar and the lucky,” he said in a speech at the Liverpool John Moores University. “Now may be the time of the famous or fortunate, but what of the frustrated and frightened?”

Although global living standards have been rising since the 1960s, British workers are now suffering a first lost decade for inflation-adjusted earnings since the 1860s, Carney said.

Frustrations over living standards are considered to have been a factor behind Britain’s referendum vote in Juen to leave the European Union, alongside concerns about immigration and a loss of sovereignty.

Carney warned about the risk of a return of protectionism in the global economy, a concern which has grown for investors since the victory of U.S. President-elect Donald Trump.

“Turning our backs on open markets would be a tragedy, but it is a possibility. It can only be averted by confronting the underlying reasons for this risk upfront,” he said.

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Later, in a television interview, Carney said Trump’s conclusions on international trade were “not right” but it was important for governments not to forget people who had been left behind by globalization.

Carney, a former Goldman Sachs investment banker, has sought to counter criticism from some senior politicians in Britain that he is out of touch with the problems of ordinary voters.


The Canadian said it was chiefly up to governments to help people cope with the consequences of global change and to get their economies growing more strongly through reforms. He also delivered a fresh defense of the Bank of England’s near-zero borrowing costs which politicians have criticized.

The BoE’s actions softened the hit to Britain’s economy after the global financial crisis, easing the blow for poorer households who suffer most from recessions, he said.

“Has monetary policy robbed savers to pay borrowers? Has the MPC been Robin Hood in reverse? In a word, no,” Carney said.

In October, Prime Minister Theresa May said the BoE’s policy of cutting interest rates to just above zero and buying hundreds of billions of pounds’ worth of government bonds had “bad side effects” for savers who were poorer as a result.

Carney challenged that assumption in his speech on Monday, saying almost all people whose savings income had been hit by low rates had gained from a rise in value of assets.

He said data from Britain’s statistics office showed only 2 percent of households had savings of over 5,000 pounds ($6,355) but did not also own other financial assets or a home whose value was boosted by quantitative easing.

($1 = 0.7868 pounds)

(This version of the story has been corrected to fix typo in headline)

Writing by William Schomberg; editing by Mark Heinrich