Who are the most important nine external individuals for any business in Britain right now? The nine most senior members of the Cabinet? Probably not! The nine highest ranking figures in the Royal Family? Don’t be daft that would include Prince Harry. The nine sector members of the British Private Equity and Venture Capital Association Council? Alas not.
The answer in all plausibility is the nine members of the Monetary Policy Committee of the Bank of England. They are responsible (among other items) for the level of interest rates in this country. They meet eight times a year, for three and a half days at each session for their deliberations about the UK economy and they are served by a staff of nine (which seems almost disturbingly small allowing for the importance of their conclusions).
Now that Britain has entered what is described as a “technical” recession (not so technical if you find yourself laying off staff or slashing the fees paid to suppliers). It is “technical” because there have been two quarters of negative growth, but these have been mild in character with no sizeable impact on, for instance, unemployment. It might also turn out to be “technical” because the Office of National Statistics is more than capable of revising its numbers at a later date at which point we may be informed that growth was flat rather than negative in the third quarter of 2023 in which case it will not have been a recession at all. In a similar spirit, the Office of Budget Responsibility, whose forecasts are treated as Gospel by HM Treasury when deciding what it should or should not do, makes up its mind about the direction of travel of the economy and can be sceptical of the Bank of England.
Not many people have many compliments to offer the MPC at the moment. It appears to have failed to see that between them the after-shocks of the pandemic, previous super-loose monetary actions and then the Russian invasion of Ukraine might trigger quite a wild (if not permanent) rush of inflation, so it started raising interests rates a bit late, then did so very sharply risking choking businesses to death, and now that inflation has descended from 11% to 4% in about a year, does not appear to be in any rush to ease interest rates to escape the “technical” recession and usher in a “technical” recovery.
There are five internal members of the MPC (the Governor, three Deputy Governors, just the hint of overmanning there, and the Bank’s Chief Economist) and four external members (outside “experts” appointed by the Chancellor of the Exchequer of the day on a part-time basis for renewable three-year terms to represent the rest of us in these seminal conversations about the UK economy).
As the Monetary Policy Committee (MPC) is the economic equivalent of the US Supreme Court, what do we know about it? That takes a little digging. With the exception of Andrew Bailey, the Governor of the Bank of England and Chair of the MPC, who has some public profile (although not as much as Mark Carney, his Canadian predecessor) the honest truth is that we do not know very much about its membership. The typical humble CFO would not recognise them walking down the street, or sharing a lift, or out shopping at Sainsburys).
There are five internal members of the MPC (the Governor, three Deputy Governors, just the hint of overmanning there, and the Bank’s Chief Economist) and four external members (outside “experts” appointed by the Chancellor of the Exchequer of the day on a part-time basis for renewable three-year terms to represent the rest of us in these seminal conversations about the UK economy).
But what are the backgrounds of the five internal members? Mr Bailey has worked at the Bank ever since completing his doctorate in 1985. In other words, he has been at the Bank for almost forty years. Ben Broadbent, Deputy Governor for Monetary Policy, has mostly been an academic and bureaucrat but did do a decent stint as a highly ranked economist at Goldman Sachs. David Ramsden, Deputy Governor for Markets and Banking, has spent his whole life in Whitehall and then the Bank. Sarah Breeden, a new addition to the team as she became the Deputy Governor for Financial Stability last November has been a Bank employee since 1991, so not long off 35 years in Threadneedle Street . Finally, Huw Pill, who is the Chief Economist at the Bank, has mostly ploughed his furrow at Harvard University and the European Central Bank (Brexit has cut off a return there) but has, in fairness, also had a stint in the private sector as… a highly ranked economist at Goldman Sachs.
At their December meeting, the minutes revealed that six of the nine backed sticking with rates as they are (an excruciating to many 5.25%), two of them wanted to nudge rates up a little higher, while one of them wanted to cut rates. The received wisdom is that rates will stay as they are at the next meeting.
Fret not. There are the four external members to take into consideration. Take a bow Jonathan Haskel, Catherine Hall, Swati Dhingra and Megan Greene. They are all four also professional economists. Mr Haskel has basically been an academic economist. The same is true of Dr. Dhingra. Ms Hall has predominantly been an academic figure as well but did serve in the (first) Bush Administration, was Chief Economist at the OECD and then did a short stretch in the private sector as Chief Economist at Citi Bank. Ms Greene also has a CV that looks much the same, but in her case she was Chief Economist at Kroll Inc.
The more encouraging news is that after three years of broadly being in lockstep, there now seems to be some sort of argument occurring at MPC meetings. At their December meeting, the minutes revealed that six of the nine backed sticking with rates as they are (an excruciating to many 5.25%), two of them wanted to nudge rates up a little higher, while one of them wanted to cut rates. The received wisdom is that rates will stay as they are at the next meeting.
Supporters are clearly needed for a rates cut and perhaps this might be the time to launch some sort of CFO secondment scheme to the Bank of England to bring in an outside perspective to the discussion? That might be our best chance of witnessing an economic recovery which is more than “technical”. We might even be able to turbocharge growth above 1%!!!
