Was Egyptian-born Minouche Shafik denied the Bank of England top job because of her views on Brexit?
The market views Andrew Bailey as the more ‘status quo’ choice
With just six weeks left before the incumbent stepped down, rumours swirled this week about the likely identity of the new Bank of England governor.
Many trained their eye on the faculty building of the London School of Economics and saw its head, Egyptian-born Minouche Shafik as a perfect fit for the job.
When the choice of rival Andrew Bailey was announced on Friday, the news came with anonymous briefings that Ms Shafik’s clear negative views on Brexit had posed an insurmountable hurdle for her candidacy.
The former deputy governor at the BoE, she stepped down from the post two years early in 2016 to take up her “dream job” as director of London School of Economics. Her credentials are impressive, having also worked as deputy managing director at the International Monetary Fund where she led efforts to develop Arab economies in the aftermath of the 2011 Arab uprising.
Had she landed the role on Friday, she would have been the bank’s first female governor in its 326-year history.
It is true Mr Bailey, the CEO of the British Financial Conduct Authority, bore an equally impressive insider resume as a contender for role of the central bank’s new governor.
Newspapers including the Financial Times however reported one of the main reasons why Ms Shafik was rejected by the newly-elected Conservative government was because her critical views on Brexit. The British Treasury has denied this but some City analysts believe that the new governor’s post-Brexit outlook was a critical part of the decision.
After two delays, Britain is set to finally leave the European Union on January 31 and Mr Bailey will be tasked with steering the economy through Britain’s departure from the European Union.
Mark Carney, the bank’s outgoing governor, has been repeatedly criticised by members of the Conservative party for wading into the political discourse around Brexit and ‘fearmongering’ about the economic impacts of it.
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Like Mr Carney, Ms Shafik has previously warned of the economic shocks associated with Britain’s departure from the bloc.
“There is no doubt in my mind that the UK is experiencing a sizeable economic shock. Any reduction in openness or need to reallocate resources will necessarily imply a slower rate of potential growth for the economy,” she said in September 2016, three months after Brits voted to leave the EU.
"Moreover, the protracted process of leaving the EU means we still know very little about the nature of our future trading arrangements, and this uncertainty is weighing on prospects for business investment,” she added.
But she has also previously cautioned against financial 'experts' wading too much into political matters publicly.
Reacting to news of the new governor, John Van Reenan, professor in MIT Economics & Sloan, said on Twitter late on Thursday: “If Minouche #Shafik was blocked because of her honesty on #Brexit, this is a sad day for political independence of @bankofengland.”
Lee Hardman, an economist at MUFG Bank, tells The National that the market will soon have a better idea about whether Brexit was a deciding factor in the decision, when Mr Bailey makes his first monetary policy announcements next year.
“In terms of the market thinking, there’s two thoughts – people either think he is status quo choice: they think he’s the inside guy from the Bank of England, he has experience but isn’t going to shake things up," he said.
“Alternatively, he could potentially be a more pro-Brexit candidate and in the near-term maybe be less inclined to cut rates because he is less worried about the hit to growth [from Brexit].
“But maybe further down the line, if he’s less concerned that inflation will pick up because of the negative shock, he may be less inclined to raise rates. He may be a more a looser-policy-for-longer kind of governor."
Updated: December 20, 2019 04:59 PM