IF GOOD timing is a gift, Britain’s chief central banker is a talented man. Mark Carney, the Canadian picked to run the Bank of England for the next five years, left his home country on a high. Since he took office in July the British economy, for so long in the doldrums, has looked much bouncier.

So far Mr Carney’s judgment seems as sound as his luck. His first big move—a commitment to keep interest rates low at least until unemployment falls to 7%—will ensure Britain’s economy continues to grow. That is a good start. But Mr Carney’s big challenge is to get credit flowing to Britain’s firms. Failure will put the recovery and his own reputation at risk.

Summertime, and the credit ain’t easy

A sunny bundle of numbers certainly suggests that Britain’s economy is on the mend. Surveys that measure consumer confidence show shoppers are feeling positive: vital in an economy in which consumption makes up two-thirds of spending. Surveys suggest managers’ purchasing plans are at record highs across construction, manufacturing and services.

Much of the upswing comes from better news on housing. Prices are rising across the country. Mortgage costs are lower. Britons with a big deposit can now borrow at 1.5%; even those on higher loan-to-value ratios have seen rates plunge. With interest payments down, disposable income is up. That explains the rosy outlook of shoppers and rising consumption. Since estate agents, lawyers and banks make up a decent chunk of services output, it also helps explain why managers in the service sector are feeling optimistic.

The question is how long it will last. Interest rates are one pitfall. With good news in the bag and more expected, central-bank watchers have been wondering when official rates might rise. The fact that inflation is above the bank’s 2% target fuels the view that a rate rise is justified. But this kind of chatter becomes self-fulfilling: when investors begin to worry that rates will rise, the yields on government bonds tend to go up. Since these yields set a floor for borrowing costs, interest-rate uncertainty can lift the rates on mortgages and corporate debt, even if the central bank has not done a thing.

This is why Mr Carney has followed the Federal Reserve and the European Central Bank in offering “forward guidance”. His commitment to keep official rates at 0.5% until at least 750,000 people are back in work aims to strip uncertainty from the system. With unemployment forecast to fall slowly, that could take until 2016, perhaps longer. Special “knockout” clauses allow Mr Carney to put a rate rise back on the table if inflationary pressure builds or if markets look unstable.

Such clarity is welcome. Britain is not ready for higher interest rates. A depressing 11.5m Britons are jobless, with 2.5m of them actively seeking employment. Many of those in work are part-timers who would gladly work longer hours (see article). And it is not just the labour market that has slack. Both the manufacturing and construction sectors are still more than 10% below their 2008 peaks. With this level of spare capacity, a bout of growth is unlikely to lead to runaway inflation.

Indeed, the big risk is that an unrelenting credit crunch for businesses snuffs out growth. The latest data show household lending is just 0.3% below its 2008 peak. But lending to firms is 22% lower. Accounting for inflation, the drop is more like 32%, and the decline is accelerating. In January lending to businesses was falling at an annualised rate of 3%. By June the pace had more than doubled to 7%.

Some of the credit cutbacks are a natural response to companies’ past excesses. Commercial-property firms borrowed on a whim in the mid-2000s. But while the party was in one sector, the hangover has been widespread. Credit to the manufacturing sector has been cut sharply, with lending to firms that make chemicals and electronics 30% lower than the peak. In fashion and food the crunch has culled 39% and 47% of loans. None of these was a particularly bubbly sector.

Loans let firms bridge the gap between buying inputs and making sales; they finance outlays on machines that must be made before revenues can rise. The crunch explains why Britain’s rate of new-firm creation is oddly low, and why business investment has fallen 34% in five years. Britain’s investment-to-GDP ratio was a dreadful 159th in the world in 2012. Its R&D spending puts it towards the bottom of a rich-world table, too.

Adjusting the taps

Powerful forces underpin the business-credit squeeze. Banks are cutting costs to raise shareholder returns. Since commercial loans require time-consuming scrutiny of business plans, they are costly to extend. Granting mortgages from a call centre is far cheaper. Lenders also need to boost capital levels: banks must hold up to four times more capital against business loans than against the safest residential mortgages. A daft new government-subsidy scheme—Help to Buy—further encourages mortgage lending by providing banks with insurance against default for borrowers with small deposits.

To offset these forces, Mr Carney should do more to make corporate lending more attractive. With the mortgage market in good health, the Funding for Lending scheme that gives banks access to cheap money should be restricted to those that provide fresh loans to firms. The scheme could also cover more of the outstanding business loans on banks’ books. A really radical Mr Carney would buy up pools of business debt. Any of these steps would free up lenders’ balance-sheets.

These ideas are not without risk. By buying or holding more volatile assets the central bank could end up losing taxpayers money. But inaction carries bigger risks. Britain’s house prices are rising again, and household debt is starting to swell. This is sustainable only if workers’ future wages justify the mortgages granted against them. They will not if Britain stays on a path of low investment, poor productivity and weak wage growth.

Mr Carney may have left Canada at just the right time, for its housing market is widely seen as frothy. If he fails to help put Britain’s economy on a more sustainable path, he risks gaining a reputation as a central banker who only knows how to pump up housing markets.