Bank of England discuss Monetary Policy with local
business
On 14th July at Leigh Court, GWE
Business West [1] brought together representatives from
the local business community to hear from Professor David Miles, an
external member of the Bank of England’s Monetary Policy
Committee. David discussed the current macroeconomic outlook,
his interest rate decisions during his time on the Committee, and
some aspects of the future stability of the banking system.
Business leaders and representatives from the
Federation of Small Businesses, Lloyds TSB, HSBC, SWAIN, The
Bristol Port Company, Barclays and Bristol City Council were
amongst the attendees. David Miles said he “Welcomed the chance to
come and talk about the economy to local business people.”
David added that he was also in the region to listen and considered
these events an important opportunity for a two-way exchange of
information.
David began by explaining the extraordinary
steps taken by the MPC in reaction to the economic downturn,
cutting interest rates rapidly in late 2008 and early 2009 to just
0.25% and subsequently injecting around £200 billion additional
money into the economy, through the process known as quantitative
easing. He noted however that the current rate of inflation,
at 3%, was still above the Bank of England target rate of 2%, which
had been impacted by a number of transitory factors, including the
dramatic fall in Sterling, the VAT rate change and also sharp rises
in oil prices. He pointed to recent forecasts in the
Bank’s Inflation Report that suggested these factors were expected
to dissipate and inflation would fall back towards the Bank’s
target later in the year. David noted: “I look forward to the
day when it will be appropriate to tighten monetary policy since a
return to more normal levels of interest would be a welcome sign
that economic conditions were also normal. But I do not think
that is where we are today.”
David countered those who argue monetary
policy should be set in a different way, so as to reduce the
chances of the banking crisis in the future, rather than aimed at
ensuring price stability: “capital requirements are a better
means to an end.” “On the eve of the financial crisis”, he
noted, “… the capital of UK banks, relative to their assets, was
around half the level that was typical fifty years earlier”.
And banks’ liquid assets were “…a fraction of what would have been
normal twenty years earlier and a tiny fraction of what would have
been normal before the 1970’s”.
He went on to argue that the fragility of the
banking system can be reduced without incurring a high cost in
terms of lower economic activity. David said: “I am rather
sceptical about the claims that substantially higher capital
requirements must mean significantly higher costs of funds for
those who borrow to invest and that total investment and output in
the economy will be significantly lower.” He suggested that,
under a plausible range of assumptions, the economic costs of
higher bank capital requirements may be small, but the impact on
the robustness of the financial system large.
Questions and comments from the attending
businesses leaders ranged from the issue of quantitative easing, to
the availability of mortgages, concerns about unemployment to the
tools at the disposal of the Monetary Policy Committee in
maintaining the target rate of inflation. The event was a welcome
opportunity for GWE Business West members to engage in some of the
national debates and to raise their concerns directly with the Bank
of England.
Nigel Hutchings, Director Chambers of
Commerce, GWE Business West said: “As a leading business voice in
the South West we welcomed the opportunity for the Bank of England
to come to Bristol and to share their expertise with our
members. We are in interesting economic times and it is
particularly beneficial for local businesses to hear about Monetary
Policy and financial stability.”
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Note to editors
[1]GWE
Business West Ltd
GWE Business West - business leadership,
business membership, business services. Playing a major role in
shaping and supporting economic growth and success.
GWE Business West exists to help provide an
environment in which business can thrive and prosper. We are a
private company with a public, business responsible purpose. We
deliver an extensive range of business to business services and act
as a powerful voice for the business community.
[2]GWEBusiness West Chambers of
Commerce
The network of the Bath, Gloucestershire, S
Gloucestershire, and Bristol Chambers of Commerce
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