(Bloomberg) — Boris Johnson’s decisive win in the U.K. election clears the way for his government to speedily name the next Bank of England governor, handing them part control of an economy that continues to limp along and which will soon face fresh Brexit risks.
Chancellor of the Exchequer Sajid Javid told Bloomberg Television last month that his party would appoint a new chief “very, very, quickly” if it won the election. Mark Carney is due to step down on Jan. 31, the same day as the U.K. leaves the European Union, and the hunt for his successor has been lengthy and chaotic, delayed first by Brexit woes and then the snap election.
The announcement of replacement won’t come on Friday, two officials said, speaking on condition of anonymity.
When the name is revealed though, the new governor will need to help steer the economy out of stormy waters. While the Conservative Party’s win means Brexit now looks certain to happen as scheduled, the U.K. then needs to secure a trade deal with the EU by the end of next year unless Johnson asks for an extension of negotiations.
Output has dropped or stagnated for the past three months, the worst performance in a decade, and companies have held back on investment decisions since the 2016 referendum. While the labor market is near record strength, there are signs that it’s starting to turn.
The upside for growth, as well as greater certainty over Brexit, is that the government has promised to end a decade of austerity and open up the public spending taps, which should stoke demand in the coming years.
Bank economists also see the election result giving the economy a lift. Kallum Pickering, senior economist at Berenberg, said growth can pick up to 1.8% in 2020 and 2.1% in 2021 after an expected 1.3% in 2019. Allan Monks, an economist at JPMorganChase & Co., said he expects fiscal stimulus to pop growth back above 1.5%.
What Bloomberg’s Economists Say
“Britain will leave the EU by the end of January. We would expect that news, combined with looser fiscal policy, to lift economic growth from its current torpor.”
“The BOE is unlikely to be in any rush to change its policy stance. Still, if our forecast comes to pass, and growth does accelerate, the next move is more likely to be up than down — we have penciled in a rate increase in 4Q2020.”
The risk is that any boost could remain modest because of a lack of clarity about the shape of any future trade deal between Britain and its largest trading partner, the EU.
HSBC Holdings Plc (LON:) said on Friday that its economists now predict that fiscal plans won’t be enough to overcome the uncertainty.
“The additional public spending pledged in the Conservative manifesto is small relative to that announced in September’s spending review, which the BOE has already factored into its forecasts,” Chief European Economist Simon Wells said in a note to clients. “We now think the BOE will cut rates by 25 basis points on May 7. If we are right, this will be a surprise to the market given current pricing.”
The next governor will have relatively little time to get up speed with the central bank’s processes and contingency plans in case of disruption. Even if named on Friday, they would have only 50 days to prepare for the role — less than a quarter of the time enjoyed by either Carney or his predecessor Mervyn King.
Speculation over the identity of the new chief largely died down during the election campaign — until the Financial Times reported on Thursday that Minouche Shafik, a former deputy governor, was the most likely candidate. That echoed a November report from the BBC.
Shafik is currently the director of the London School of Economics and also served as the deputy managing director of the International Monetary Fund and a vice president of the World Bank. A woman has never run the Bank of England in its three centuries of existence.
Other media outlets have suggested another former deputy governor, Paul Tucker, who lost out the last time to Carney, or Andrew Bailey, current head of the financial watchdog. Current Monetary Policy Committee members Ben Broadbent, Jon Cunliffe and Andy Haldane are also in the frame.
The BOE has assured banks and investors that the financial system is as prepared as it can be, and policy makers have said that as long as Brexit goes smoothly, a series of limited and gradual rate hikes will probably needed to keep supply and demand in balance. At November’s decision though, two officials pushed for an immediate rate cut from 0.75% because of threats to the outlook.
Carney will hold a press conference on Monday after the BOE’s annual bank stress tests, and the next interest-rate decision will be announced on Dec. 19, giving policy makers a chance to outline their thinking in the wake of the election. It’ll be a busy week for the U.K. economy, with data on jobs, wages, inflation, retail sales and growth all due.
(Updates with comment on timing of announcement in third paragraph)