DealBook: Bank of England to Investigate Foreign Exchange Manipulation Claims

Bank of England Comments Send the Pound Lower

LONDON — Barely four days in the job, Mark J. Carney, the new Bank of England governor, is already having an impact on markets here.

The pound dropped about 1.3 percent against the dollar and also fell against other major currencies on Thursday after the central bank said that any expectations that interest rates would rise soon from their current record-low level were misguided.

The statement, issued along with the bank’s monthly interest rate announcement, was itself a departure from previous practice and showed that Mr. Carney, who became governor on Monday, is already making his mark on procedures.

“The drop in the pound is byproduct of the comments, and the market reaction indicates just how eager it is for comments from the new regime,” Peter Dixon, an economist at Commerzbank, said.

The central bank decided to leave its main rate at 0.5 percent and also held its program of economic stimulus at £375 billion, or $570 billion. Recent data from the services and manufacturing industries had surprised some economists by showing faster rates of growth.

The bank said it decided to keep stimulus and the interest rate unchanged as “there have been further signs that a recovery is in train, although it remains weak by historical standards and a degree of slack is expected to persist for some time.”

“In the committee’s view, the implied rise in the expected future path of bank rate was not warranted by the recent developments in the domestic economy,” the bank said.

Mr. Carney, a Canadian who succeeded Mervyn A. King as governor, is expected to communicate more clearly than his predecessor which steps the central bank might take to spur growth. The former governor of Canada’s central bank has also said he is a supporter of U.S. Federal Reserve-like guidance for how long interest rates may remain unchanged to give greater certainty to borrowers.

Many economists expect that Mr. Carney voted in favor of more quantitative easing, the Bank of England’s bond-buying program, at the two-day rate-setting meeting that started on Wednesday. But they also expect that he was outvoted, just as Mr. King was last month, amid some timid signs that a recovery is taking shape. The central bank will release minutes of the current meeting next month.

After barely avoiding a triple-dip recession this year, the British economy showed signs of improvement in June. The services sector unexpectedly grew at its fastest pace in more than two years, according to data from Markit Economics and the Chartered Institute of Purchasing and Supply. The manufacturing and construction industry also improved last month.

The housing market also showed signs of continued improvement. Approvals for home loans granted by banks rose more than expected to the highest level since 2009 in May, according to figures provided by the Bank of England. The average price for a home continued to increase in June, led by London, according to Hometrack, a research concern.

“The data has been stunningly good,” David Tinsley, an economist at BNP Paribas in London, said before the announcement Thursday. But he also said that it was too early to say the worst was over for the British economy and that he expected the Bank of England to expand its stimulus program in the future. “The situation is probably still more fragile than it appears,” he said.

Economic growth is still expected to remain weak as long as troubles on the Continent, Britain’s largest export market, persist and austerity measures continue to be a drag on the recovery. George Osborne, the chancellor of the Exchequer and the architect of Britain’s austerity program, last month announced additional spending cuts, including more public sector job cuts.

Real disposable household income fell 1.7 percent in the first three months of this year, the biggest drop since 1987, according to the Office for National Statistics. Inflation continues to hover above the central bank’s 2 percent target at 2.7 percent just as many consumers had their salaries frozen.

In another sign that not all is well among British consumers, Nicole Farhi, the upmarket fashion label, filed for a form of bankruptcy protection on Wednesday, the latest British retailer to face serious trouble as demand dwindles.

Canadian Steps In to Lead Bank of England

It was Mark J. Carney, who was then the more or less anonymous head of Canada’s central bank. An increasingly influential, if not discreet, troubleshooter on global financial matters, Mr. Carney had become an active participant at Downing Street’s crisis huddles in late 2008. He argued that giant entities like Royal Bank of Scotland posed a danger not only to their home country but the financial system as a whole.

Mr. Carney’s advice was to consider the institutions those banks were borrowing from and lending to, recalled Alistair Darling, who was the British chancellor of the Exchequer, or finance minister, at the time. “It gave us a bigger picture that the supervisory authorities did not have at the time,” Mr. Darling said.

Britain would later become the first major country to inject capital directly into its ailing banks. And while full credit for the decision goes to Mr. Darling and the prime minister at the time, Gordon Brown, Mr. Carney played a crucial role.

On Monday, Mr. Carney, 48, will no longer be an adviser but the man in charge. He is to step into the Bank of England’s palatial home on Threadneedle Street to take on one of the biggest roles in the future of Britain’s economy and banking sector.

Mr. Carney, who is Canadian, is succeeding Mervyn A. King as the governor of the Bank of England and is hailed as the first non-British governor in the bank’s 319-year history. But as Mr. Carney prepares to take on his new role some question if the task at hand may be beyond him, or any central banker, for that matter.

Sluggish demand for goods from the troubled euro zone, Britain’s largest export market, is keeping many companies from investing in new machinery or hiring staff. And the austerity measures prescribed by the current chancellor, George Osborne — which are likely to continue through 2018, much longer than initially planned — have squeezed disposable income as consumer prices keep rising. At the beginning of the year, Britain barely avoided a triple-dip recession.

“We’re not exporting enough and not consuming enough, and monetary policy alone can’t fix that,” said Robert Wood, an economist at Berenberg Bank. “Mr. Carney has been built up as Superman, but clearly there’s no way he can live up to the hype,” Mr. Wood said. “He can’t single-handedly rescue the economy.”

Mr. Carney declined an interview request.

Young and dynamic — he was a goalie on Harvard University’s varsity hockey team — Mr. Carney brings with him attributes not usually found among the dowdy breed of central bankers. While Mr. King once said his ambition was for monetary policy to be boring, Mr. Carney has been overheard using phrases like “monetary activism” and “escape velocity.”

An ability to make himself seem indispensable lies at the root of Mr. Carney’s extraordinary rise, accomplished in just under 10 years, from a position as a midlevel investment banker at Goldman Sachs to the top of the Bank of England.

It was not until March 2008, when Mr. Carney became the first central banker to aggressively lower interest rates in his country, that his current reputation as the Superman of central bankers began to take form. He then pledged to keep rates low for a year — at 0.25 percent — providing some certainty to borrowers in the chaos of the financial crisis.

For Mr. Osborne, it was that combination of style and substance that made Mr. Carney “simply the best, most experienced and most qualified person in the world” to lead the Bank of England. So eager was Mr. Osborne to hire Mr. Carney, who has a doctorate from the University of Oxford, that he chased him across continents to ask him more than once and to promise one of the highest pay packages of any central banker in the world — £480,000, or $730,000, in salary, plus a generous housing allowance.

Under Mr. King, the Bank of England injected money into the economy by buying £375 billion in assets, mainly government bonds. To get banks to lend again, the central bank started to offer cheap credit to banks, but that stimulus move had little result. Mr. King, arguing that more needs to be done to revive growth, has been voting for more asset purchases on the monetary policy committee but has been outvoted every month since February.

This article has been revised to reflect the following correction:

Correction: July 1, 2013

An earlier version of this article attributed an erroneous distinction to Mr. Carney’s pay package. His annual salary of $730,000 is among the highest for any central banker, but it is not “by far the highest.” The governor of the central bank of Australia receives the equivalent of $769,000 in annual salary.

DealBook: Bank of England Official to Leave

Neil Hall/ReutersPaul Tucker, deputy governor of the Bank of England.

LONDON – The Bank of England said Friday that Paul Tucker would resign as deputy governor. The announcement comes two weeks before Mark Carney takes over as the governor of the central bank.

Mr. Tucker, who has spent 33 years at the Bank of England, was also a candidate for the top job at the central bank. Mr. Tucker said that he planned to stay through the summer to help Mr. Carney, the former governor of the Bank of Canada, settle in to his new role.

“It has been an extraordinary honor to serve at the Bank of England over the past 30 years,” Mr. Tucker said in a statement. “I am very proud that, through the bank and the wider central banking community, I have been able to make a contribution to monetary and financial stability. I am looking forward to supporting Mark Carney as he arrives at the bank.”

Mr. Tucker had been a leading candidate to replace Mervyn A. King as governor of the Bank of England. But his chances dimmed after questions arose after an interest rate manipulation scandal erupted last summer.

British politicians accused Mr. Tucker and the central bank of failing to crack down on efforts by Barclays and other banks to manipulate the London interbank offered rate, or Libor, a benchmark for mortgages, corporate loans and other financial products worldwide. Mr. Tucker had to defend himself against assertions by former Barclays executives that the Bank of England had been aware of attempts to influence rates.

Mr. Tucker joined the Bank of England in 1980 after studying mathematics at Cambridge University. He became executive director for markets in 2002 and a member of the Bank of England’s rate setting committee. Earlier this year, he took a seat at the newly created Financial Policy Committee, which is part of Britain’s financial regulation system. At the central bank, he is known for improving communication with large financial organizations and keeping closer ties with chief risk officers.

“Paul has contributed immeasurably to a series of critical financial reforms, including policies to end too big to fail and to build more resilient derivative and funding markets,” said Mr. Carney, who is due to take the top job at the Bank of England on July 1. He added that he would like to continue a “close dialogue on how to build a more resilient financial system that more effectively serves the needs of the real economy.”

In a letter to Mr. Tucker published on the Bank of England’s Web site, George Osborne, the chancellor of the Exchequer, wrote that he was grateful to Mr. Tucker for his service and “a tremendous contribution to U.K. monetary and financial policy.”

“I have no doubt that you will continue to make a towering contribution to the international economic community,” Mr. Osborne wrote. “I hope that we stay in touch.”

Bank of England Divided on Continuing Stimulus Measures

LONDON — Policymakers at the Bank of England are divided over the future of their multibillion-pound program of bond purchases to stimulate the economy, according to minutes of their discussions released Wednesday, which suggests that prospects for an expansion of the program in the near term may be fading.

With the British economy likely to emerge from recession in the third quarter, but still facing extremely weak growth, many analysts had expected more stimulus in November.

But there is also growing sense that, with interest rates already at a record low, and the jury still out on the impact of the central bank’s asset purchases on the economy, monetary policy is becoming less effective as a means of stimulus.

Instead of central-bank stimulus measures, some economists favor a slowdown in the pace of large government spending cuts intended to cut the country’s budget deficit.

The bank’s policy makers also noted that consumer price inflation was still above the bank’s 2 percent annual target and probably would not decline this year, as had been hoped, because of rising energy and food costs. Economists note that inflation argues against an increase in stimulus, for fear of overheating the economy.

The release of the minutes coincided Wednesday with positive new data on jobs. Britain’s unemployment rate for June to August 2012 was 7.9 percent of the economically active population, down 0.2 percentage points from March to May 2012, according to the Office for National Statistics, an independent agency that prepares data for the government. There were 2.53 million unemployed people, down 50,000 from March to May 2012, the office said.

The record of the October meeting of the central bank’s Monetary Policy Committee showed that there was unanimous agreement to hold interest rates at a record low of 0.5 percent and not to expand the £375 billion, or $600 billion, purchasing plan, known as quantitative easing.

But the minutes also indicate that the debate on what to do at next month’s meeting will be finely balanced.

“There were some differences of view between members about the outlook and the likelihood that further easing in policy would be required,” the minutes said. “But there was agreement that there was little to be gained at this meeting in changing the current program of asset purchases.”

The bank minutes noted that consumer price inflation had fallen to 2.5 percent in August, from 2.6 percent in July, still slightly above the 2 percent target. “But higher oil prices and likely rises in domestic energy prices and some foodstuffs meant that inflation might remain broadly flat over the rest of the year, rather than gently falling as expected,” the minutes said.

Martin Weale, a member of the bank’s monetary policy committee, dampened expectations about more asset purchases last week when he said in an interview with the Daily Mail newspaper that it was “not self-evident” that “substantial extra support for the economy would be compatible with the inflation target.”

His comments, along with the labor report “provided some support for more hawkish members” of the central bank’s policy committee, Neville Hill, director of European economics at Credit Suisse, wrote in a note.

Rob Wood, chief U.K. economist for Berenberg Bank in London, said that the central bank’s position on continuing the stimulus would also depend on other signs of recovery in the economy.

“Productivity will be absolutely critical to the outcome of the committee’s November decision,” Mr. Wood said. “If productivity growth remains weak, there are limits to how much more monetary policy” can do “to boost growth without raising inflationary pressures.”