Mark Carney, the incoming Governor of the Bank of England, gave evidence to the Treasury select committee yesterday. How is that relevant to Landlords and Tenants? Inflation at (2.7%) influences people's spending decisions. The Bank of England's monetary policy decisions affect a whole range of factors- lending, business confidence and investment etc. To that extent, I would say it is very relevant and Landlords / Tenants and their Lawyers should pay attention.
What did Carney say? It's more about what he did not say. He promised a more aggressive stance and that the Bank would do more to boost lending to businesses etc. He suggested that the Bank will not increase interest rates until the recovery is on a firm footing (not any time soon then). However, Carney shied away from promising that the Bank will continue with its QE (quantitative easing) programme until employment was below a certain level (thus emulating the practice of the US Federal Reserve) or from targeting a certain percentage of economic growth.
With fiscal policy (tax and spending) remaining constrained it is natural that Osborne wants to pass the ball over to the Bank and let them pick up the slack. Will they? It's difficult to say. Carney's rheotoric thus far suggests that the Bank would not hesitate to expand its QE programme if economic growth fails to deliver. Any attempt though to inflate the economy back to recovery could have an impact on consumer's spending decisions. If inflation is pushed higher it will eat into (already squeezed) pay packets. People will not go out and spend. High street businesses will go bust. That is a disaster for the Landlord, who needs Tenants in his property, trading and making a profit (and paying rent!).
Mark Carney will pick up the baton from Mervyn King in June. We shall have to wait and see the effect his arrival will have on monetary policy. One thing is clear- higher inflation will do nothing to solve the problem of struggling retail Tenants, empty properties and out of pocket Landlords!
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