Bank on the run
The monetary policy committee hits the road
Sir Alan Budd almost choked on his breakfast. Browsing through The Times, the economist saw a story criticising members of the Bank of England’s monetary policy committee – such as himself – for failing to get out of London. As he read this, Sir Alan was eating at a hotel in Leeds. Munch, munch, splutter.
Equally shocking was the misunderstanding which followed a visit to Newcastle by Eddie George, the Bank’s governor. He was accused of suggesting that job losses in the north-east were “a price worth paying” to curb inflation in the south. Faced with an extremely unpleasant reception on a subsequent trip, he explained that he had been quoted out of context.
Since 1997, when the government handed control of inflation to the Bank of England, members of the MPC – responsible for keeping inflation at 2.5 per cent – have toured the whole country. Between the nine of them (no longer including Sir Alan), they make more than 50 trips a year.
These roadshows can earn considerable political advantage. They show that pointy-heads listen to real people, dispel the impression of London-bias in MPC decisions, and may help the Bank to win some of the clout enjoyed by the US Federal Reserve and Germany’s Bundesbank.
One of the most enthusiastic travellers is DeAnne (pronounced Dee-Anne) Julius, a UK-based American and the only member with industrial experience. For her habit of voting against interest rate rises – and in favour of cuts – she is often described as “doveish” – but she dislikes that. “I don’t think hawks and doves are very useful categories except for birds.” Nor is she keen to be ranked the MPC member least likely to vote with the majority. But the minutes of the last meeting, published that morning, reveal that Julius was one of only two who voted against a rise.
Slim to the point of frailty, Julius dresses soberly in long fitted jackets with silk scarves and sensible shoes; her hair is short. Her most remarkable features are bright blue eyes. “She has smiling eyes,” says an accountant who meets her in Torquay, “and I’m not just saying that because she’s a lady.”
Julius’s present trip, to assess industry, tourism and agriculture in the south-west, has been arranged by the Bank’s Bristol-based agent, the amiable, angular Nigel Falls. Like all the Bank’s agents, Falls provides continuous reports on the state of the economy, based on meetings with contacts across the region.
Many people might be surprised that anecdotal material, necessarily subjective, could be important to economists. One of the “wise men” who advised the previous government prefers official data: “The difficulty with any field trips,” he sniffs, “is that they’re bound to be partial and selective.” But Julius has stated several times that the agents’ findings are more useful than any other source of information, taking into account a range of criteria (specifically, that they’re reliabile, relevant, representative, and timely). This two-day visit emphasises the value she attaches to individual stories.
At an industrial estate outside Plymouth, Julius asks about inward investment, imports, and the availability of labour. On the factory floor, over the considerable din, she nods and smiles at stations on the production line: sheet-metal cutters, nippy robot welders, a swimming-pool-sized paint vat (“Amazing!”), the packing area and the loading bay (“It all goes out by truck?”). She looks genuinely interested, shows none of the stony-faced enthusiasm of, say, the Queen – but then she’s not carried out half as many visits.
Our next appointment, immediately after, is an interview with The Western Morning News. Jason Groves, the fair-haired business reporter, leads Julius to the empty canteen and starts firing off optimistic questions: “Are we going to see interest rates fall in the future?” While he interrogates her about the state of the economy – and then, to my surprise, she interrogates him – I become painfully aware that nobody’s eaten for hours. Nor been to the loo. Does Julius run on batteries?
I’m no expert, but even I can tell that the questions Groves is asking, intelligent enough for his purposes, are basic. In a lecture last year, Sir Alan Budd said that 150 variables were built into the Bank’s econometric models, and that the MPC is presented with information on “a thousand or so” variables. But future trends depend on an infinity of variables, so the MPC’s predictions can never achieve great accuracy. Julius has admitted, for instance, that she didn’t foresee the recent crisis in Asia. On this trip, she accepts that oil prices “could go in any direction”; and reveals that the MPC predicted a “blip” after the introduction of the minimum wage which her own subsequent calculations suggest did not appear. But, despite the lack of perfect foresight, the MPC gets together each month to make decisions that produce real, often painful, results.
To a non-specialist, it can seem alarming that economists wield so much power. How did mankind get by for so many centuries without them? How did we cope without the “saucer-shaped inflation projection” mention-ed in the MPC’s minutes? Economists have become the new priesthood. The entire world has succumbed to their powers: only other economists can understand or challenge their views.
“I don’t think that’s true,” says Julius, terrifically reasonably. “There’s a fundamental core of economics that is quite simple. On the MPC, we are debating fine points – like the output gap…” (I nod, as if I understand). “I like to think we are like a set of technicians, or doctors. You hope to have the best doctor, and you might be more comfortable if you knew your doctor was arguing with eight other experts before reaching his verdict on your case. That structure should lead to better decision-making.”
In the evening, installed in our tall hotel overlooking Plymouth Hoe, we meet a group of 11 business leaders in the penthouse bar, then move into a yellow dining room where the windows stream with condensation. While the rest of us eat, Julius explains the workings of the MPC and the reason for her visit. As she does so, she reveals an unexpectedly crafty streak. By last November, Julius thought interest rates needed to come down by quite a lot, but she was one of the MPC members who argued against dropping them all at once. By doing it gradually, she argued, the Bank would generate growing confidence. Until now, I hadn’t registered how highly the MPC valued confidence. Over dinner, I watch Julius search eagerly for signs of it, but find only tiny amounts.
Having delivered her spiel, she poses three questions. Already I’ve discerned a pattern. She always wants to hear about demand. She hankers for news about the “tightness” of labour markets (whether low unemployment is causing wage inflation). And she asks about the effect of the internet.
As a Londoner, I find it odd that nobody talks about house prices. Plymouth’s business community is more interested in exchange rates. All of them have been hurt by the high cost of exports. “I’m a world leader,” claims a manufacturer with white hair and long-sight specs. “I’ve got a good product, but it’s price sensitive.” A boatbuilder says: “We see a big squeeze coming.” But exchange rates, Julius gently explains, are not within the remit of the MPC.
In the past, Julius tells me, some guests have become aggressive, directing their frustrations at her (“I’m the only person available”). That doesn’t happen tonight. Falls, coming round with the wine bottle, says the dinner has been a success. Julius concurs, but the message for the economy, they decide, was “mixed”.
Next morning, I get to reception punctually at 7.10. Julius and the Bank’s press officer, Sally Reid, are already waiting for me. I feel dazed, but Julius is bright as ever. In the cab to the radio station she reveals some useful personal stuff. She once devised an incentive scheme to encourage her children to learn keyboard skills. After that, she created a scheme for her daughter’s GCSEs, a project so complex that even Julius needed a calculator to work it out. Perking up, I ask if this, expressed on a graph, would be saucer-shaped, like the MPC’s inflation projection. No, says Julius gravely, waving her right hand to describe an upward slope.
She may have smiling eyes, but she doesn’t do jokes.
Still more tellingly, Julius lets slip that she grows bonsai. She has 12 tiny trees at her home in Surrey. Like all good economists, Julius favours growth, but not too much of it.
At the BBC studios, the fare comes to £3.90. Julius gives the driver 10p extra and, naturally, asks for a receipt. Inside the scruffy studio, Julius takes a seat opposite the presenter, Christine Hussey, and waits silently for her to finish broadcasting the names of ships in port today. Then, while a disembodied voice forecasts the weather, Christine apologises for her ignorance about money.
During the interview, Julius once again explains the purpose of the MPC. Christine stares with awe – as if at Einstein, back from the grave – and when it’s over, plainly relieved that she no longer has to invent questions, says: “Thanks to Duh-Anne Julius!”
Outside, the taxi is still waiting. This is a pleasant surprise, because in Norwich recently their taxi went missing. The resourceful Sally Reid rustled up a lift from… an independent financial adviser. Lucky devil. In the back of his car, he had the woman who keeps down the cost of mortgages. (“I told him if he was ever in London he should give me a call,” says Julius.)
This gives me an idea. Back at the hotel, over a full English breakfast – Julius eats! – I press her for personal finance tips. I’m of the view, I tell her, that house prices in London are unsustainably high. I’m thinking of selling my flat, then renting while house prices drop. What does she think? Is it a good wheeze? Julius merely smiles enigmatically.
Reunited with Falls, we leave Plymouth at ten past nine, arriving an hour later at a hotel in Torquay. In a large room at the end of a corridor, 30 men and four women sit round cloth-covered tables. Welcome to the Torbay Business Forum.
Standing beside the slide projector, Julius describes the role of the MPC for the fourth time in 24 hours. Her slides are strangely compelling. One appears to show a snake coiled round a stick; this is a graph showing growth curling above and below the trend. Another shows three jagged lines on a downward slope: inflation, unemployment, and a combination of indicators which Julius identifies as the Misery Index. This expressive term wins a few chuckles; but, for most of the time, the audience stares anxiously, with creased foreheads and hands cupped round their chins.
Questions, as ever, are mostly about exchange rates. But some do ask about interest rates. Why doesn’t the Bank introduce differential rates to help beleaguered industries such as tourism? Why are rates so low on the Continent? Why doesn’t the Bank simply devalue the pound? At each question, Julius nods seriously – doesn’t chortle, or give any other sign of incredulity – but she tells me later that inexpert inquiries can be a useful indicator of economic awareness.
Her visit is a bit of a triumph for the Forum, which failed to lure John Major when he was prime minister. Before lunch, Julius is roped into a PR opportunity. A local photographer positions her beside the chairman, then whips out a prop: a colourful fan of banknotes. “I’ve counted it!” he says, passing his moolah nervously to the woman from the Bank of England.
Afterwards, in the car, I ask Julius if she minds being used like this. She doesn’t seem to, and says she’s glad the Forum got something out of the meeting because she did too. For instance, she learned a lot from a builder sitting beside her at lunch (“I asked him about confidence issues”).
At the Regional Development Agency in Exeter, Julius absorbs vast quantities of information about skill shortages and employment patterns. I, meanwhile, admire the offices – the first that are up to scratch for visitors from the City of London. Even the handmade yellow tea cups are a cut above what we’ve seen before, because to be frank, the décor and amenities elsewhere have struck me as tatty. The point of this observation is not to sound snooty, only to indicate the prosperity gap between the City and the rest of the nation; the fact that Julius does not show such snobbery is a measure of her value to the Bank.
If there’s one place where the gulf between the City and the regions may prove insuperable, it’s in the Exeter offices of the National Farmers Union. That’s where Julius’s roadshow finally reaches an end. Throughout the afternoon, I’ve become aware of increasing levels of anxiety. Falls is apprehensive about meeting the farmers because their regional director, a moderating influence, will be absent. So this is the big one: Julius’s Waterloo, her Newcastle. At the modern, redbrick Agriculture House, a palpable sense of doom hangs over our little group. And when we meet the four burly farmers in a first-floor conference room, I’m immediately impressed by the size of their hands – each finger like a banana – the dirty fingernails and the missing teeth.
Between them, the union officials employ body language expressive of defeat but also defiance: while one describes the terrible power of the supermarkets, an older man hunches quietly over his papers, and the two youngest lean back in their chairs with folded arms. For the first time, there’s something less than confident about Julius, but she listens patiently and sympathetically. “I’m aware that the agricultural economy is one of the hardest hit…” she begins, but then, like a grandmaster delivering check-mate, one of the younger farmers interrupts to plonk a copy of today’s Daily Express before her. A photo shows 44 men and women standing round a cow. “All those people depend on just one cow,” he says brusquely. “You, as a banker – I’m not being rude but you might not understand…”
He’s gone too far. Julius seizes her moment, gently asserting that she does know a bit about farming, having grown up in Iowa. It’s a daring move but it pays off. For the rest of the meeting, the farmers show more respect. Julius does most of the talking and even smiles a bit. She gives them time to repeat a few grievances, then calls the meeting to an end. “Well,” says the MPC’s most accomplished listener, “it’s been a very depressing hour. But thanks for your time.”