"Low policy interest rates are not the caprice of central bankers, but rather the consequence of powerful global forces, including debt, demographics and distribution."
Speaking at Liverpool John Moores University, Carney said that the performance of the advanced economies over the past ten years has "consistently disappointed", adding that many citizens in advanced economies are facing "heightened uncertainty, lamenting a loss of control and losing trust in the system".
He believes that for many, globalisation is associated with low wages, insecure employment and "striking inequalities", with these anxieties being compounded by the "twin crises of solvency and integrity at the heart of finance".
He noted that the UK's current level of activity remains around 16% lower than the pre-crisis trend, with real earnings growing at the slowest rate since the mid-19th Century over the past decade.
Carney also discussed how current political and financial uncertainty is expected to cut 7% from investment over the next three years and 1% from GDP.
He said: "This unprecedented desire for safety has helped to drive down the equilibrium interest rate – the interest rate central banks must deliver in order to balance demand with supply and so achieve stable inflation. In this sense, low policy interest rates are not the caprice of central bankers, but rather the consequence of powerful global forces, including debt, demographics and distribution."
Carney added that the same forces are contributing to deficits in defined-benefit pensions, stating that "the value of these schemes’ investments in equities and real estate are low relative to the level of interest rates because investors are valuing safety much more than they are expecting faster growth".
Discussing the importance of the Bank's role in stimulating the economy, Carney said that "for seven years, in the face of severe headwinds to growth, monetary policy has been the only game in town", arguing that 2.5 million jobs have been created since rates were cut and QE was launched.
Concluding, Carney asked: "Why, then, doesn’t it feel like the good old days? Because anxiety about the future has increased, because productivity hasn’t recovered, and, as a consequence of the latter, because real wages are below where they were a decade ago – something that no-one alive today has experienced before.
"The underlying reasons for the 16% shortfall of the UK’s productive capacity, relative to trend, are poorly understood.
"What is clear is that the influence of monetary policy on productivity is limited. It can only stabilise demand around the economy’s potential; it cannot increase it."
