The Governor of the Bank of England has outlined the problems facing the UK in the near-future and the role the central bank which he heads can play in tackling them. Chief among them is the dilemma faced by the central bank between controlling inflation and fostering growth.

Mark Carney addressed a packed Old Theatre here at LSE yesterday evening alongside Nobel laureate Amartya Sen and President of the British Academy Lord Stern. His first public speech of 2017 was highly anticipated not least because of the plummeting sterling, driven by growing fears in the financial markets of a “hard Brexit” which PM Theresa May announced in a speech earlier today.

Suggesting that the MPC (Monetary Policy Committee) could raise or drop interest rates in the future depending on the state of the economy, the Governor emphasised the importance of the 2% inflation target set by the government as the remit of the bank: “there are limits to the extent to which above-target inflation can be tolerated”.

This can be contrasted with the MPC and the Governor’s stance just two months ago in November when the bank said it would tolerate “somewhat higher consumer price inflation” if it meant a lower increase in unemployment.

Yesterday’s emphasis of the bank’s limitations when it comes to tolerating inflation overshoot can be seen as a response to the falling sterling and robust consumer spending, both of which exerts upward pressure on prices. In fact, prices are rising at the fastest rate since 2014 and predicted to breach the 2% level within months.

Brexit backlash

In the Q&A, the Governor was challenged by a student who asked for clarification regarding his recent remarks about Brexit. He has previously warned of a potential recession if Brexit were to happen, yet only a few days ago claimed that Europe was more at risk economically than the UK in the event of a hard Brexit.

The pre-referendum warning was hugely controversial at the time. The Governor became an unpopular figure amongst Brexiteers, some of whom have called for his resignation. In response to the student’s question, the Governor defended his warning by saying that it was made on the basis of the possibility that a “technical recession” could occur.

“Governance by discussion”

Also on stage alongside Mark Carney was the Nobel laureate Amartya Sen, who gave a brief response to the Governor’s speech. Alluding to the words of philosopher John Stuart Mill, the revered Indian-born economist stressed the importance of “governance by discussion” in the realm of economic policy-making, where democracy must be an important consideration in order to generate legitimate and effective policies.

The Governor echoed this sentiment, characterising the relationship between the central bank, government and the British people as one of constant dialogue. He went on to say that the public is responsible for determining the desired end, whether it be price stability or low unemployment, whilst the bank is responsible for determining the means to deliver that end.

Amartya Sen will be speaking about Collective Choice and Social Welfare this coming Thursday 6:30pm at the LSE.