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Region’s positive mood bodes well for future
Bank of England policymaker Professor David Miles had some reassuring words for the North East on a recent fact-finding visit. Business Editor Andy Richardson asked some pertinent questions
THE Bank of England will wait until the North-East economy starts to take a more active part in any recovery before it tinkers with interest rates, a senior policymaker told The Northern Echo.
During a fact-finding visit to the region, Professor David Miles attempted to drive home the message that the bank is well aware of the challenges facing regional economies and is wary of strangling an embryonic recovery before it has built momentum.
The bank recently issued its forward guidance advice which confirmed that, barring an alarming rise in inflation, we can look forward to another two or three years of record-low interest rates.
It plans to wait until national unemployment rates drop to seven per cent or lower before it will look to exert monetary policy controls.
But how can this approach work when the speed of recovery differs so sharply across the UK?
Jobless rates in the South- East are already as low as 5.8 per cent while the North- East’s 10.4 per cent unemployment level makes it the hardest place in the country to find work.
The gap between house prices in Northern and Southern England this month moved above £100,000 for the first time. London prices are at an all-time high, but overall UK prices were eight per cent below the peak of 2007, according to the latest Nationwide survey, which showed prices fell across the North.
Isn’t there a risk that while the Bank of England waits for regions like ours to recover the economy in the South-East will overheat?
“You are right, there is a risk,” said Prof Miles, an external member of the Bank of England Monetary Policy Committee. “When we set monetary policy we have to do it for the whole country. You can’t have one bank rate for the South-East and another for Wales, and yet another for the North-East,” said the pugnacious Welshman – a keen rugby scrum half in his youth.
“I came here to listen and learn about what conditions look like in the North-East rather than me telling people about how things are in London.
“For things like the housing market, the North-East is not unusual. It is the area within the M25 that is unusual at the moment.
“It would be wrong for us to base policy on what is happening in the South-East alone because it is not typical of the national situation.
“What I have heard from people here during my twoday visit is very similar for most of the UK, which is that house prices are not increasing very fast.
“They are more or less flat, and transactions [house sales] have picked up only a little bit.
They are nowhere near the level we saw before the financial train wreck of a few years ago. But the good economic news we have seen of late is not confined to the South- East. I have been quite struck by the fact that there is a more positive mood in the North- East.
“I hope the worst of it is behind us. I am more confident than at any time since I joined the MPC in 2009 that we are on a trajectory that is one of significant positive growth that can be sustained. We cannot endanger that by tightening monetary policy at the slightest signs of growth.”
Why did you choose seven per cent as a target rate for unemployment before you will act?
“We decided on seven per cent as a reasonable point to have an analysis of where we go next. It’s not hard and fast.
We won’t jump in at seven per cent. I believe that the economy can continue to hit the bank’s inflation target with unemployment considerably lower than seven per cent.
“We are not going to get to seven per cent and suddenly tighten monetary policy and get back to a more normal bank rate.
“In the 300 years of the bank, a normal rate has been about five per cent. The message is until we get to seven per cent we are not even to begin to normalise monetary policy.
“It is all about building confidence to give the recovery some legs.”
If you were editor of The Northern Echo, would you publish a front page with the headline – The recession is over?
“I might be a bit more cautious than that. My headline would be – It’s early days but there are reasons for optimism.
I accept that is a very boring headline. I probably wouldn’t last long at a newspaper.
At the bank, you need a different skill-set.”
What differences have you observed between Mark Carney’s approach as Governor compared to his predecessor, Sir Mervyn King?
“In terms of their general aims, I don’t think they are too different. The remit that the Government has given the Bank of England in terms of the aims of monetary policy hasn’t really changed from Mervyn King leaving and Mark coming on board.
“There is an enormous spotlight on him. They have a slightly different style. Mark is a younger man.”
The bank seems to be taking a wait and see approach. Is that making it difficult for Mark Carney to make an impact?
“We have launched this idea of providing forward guidance.
I believe it was important to do that when the economy was on a recovery path.
Mark took the lead in our discussion of forward guidance.
To say there isn’t much happening would be wrong.”
But there was a lot of hype following Mr Carney’s appointment by George Osborne.
Is there a risk that, like Fabio Capello as England manager, he becomes an overseas boss who fails to live up to expectations?
“I would hope that the future performance of the UK economy is better than it has been for the England football team under recent managers.
We shall see.”
- As part of his visit, Professor Miles addressed the North-East Property Forum at Lingfield Point, Darlington, organised by The Northern Echo, Latimer Hinks solicitors and Recognition PR.
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