EDINBURGH (MNI) – The following is a transcript of Bank of England
Monetary Policy Committee member Adam Posen’s question and answer
session with reporters on the economy and monetary policy. It followed
his appearance at the Just Banking conference in the evening of April
19.
The questions have been paraphrased while Posen’s answers are
direct quotes.
Q: The minutes made a reference the possibility of three
consecutive quarters of negative growth. How concerned are you about
this ?
Posen: “My own personal view, which is consistent with the op-ed I
put out today and all the rest of that, is that I think the economy is
stronger than what the data is going to show.”
“And there was a nice little piece that came out from Goldman
Sachs, I think it was Kevin Daly the other day, the UK economist , in
which he said they have got this rolling set of indicators that shows
underlying growth well over 1% at an annualised rate in March, and close
to 1% on an annualised rate in February.”
“The scary part is we don’t want to spend our entire life saying
‘Oh, ignore this number, ignore that number’
“So the concern expressed in the (April MPC) minutes was people
will see these three numbers and react to them in confidence terms, in
negative confidence terms. We don’t think they are justified but in the
end it could still be a real confidence shock to the economy.”
“And there is no good way of ducking that, one way or the other. If
we react to that (weak growth data) as though it is part of the core
forecast that is really getting very speculative. If we dismiss the
data, it’s not really fair and it’s not very credible. So we are just
sort of stuck.”
“In my opinion, that is what the piece in the minutes meant on
that. It meant , it’s not so much that there is a wide range of views on
the committee about’ is there really going to be a recession?’ . It
meant that there is a group of people on the committee who feel a
legitimate concern about what is going to be the confidence effects from
this picture.”
Q: Will the BOE’s new forecast not reflect what the ONS data show ?
Posen: “It is not about what the ONS statistics say now. It is
about what we think growth, and therefore inflation, are going to be in
two plus years’ time. And so we don’t look at quarter- to- quarter
variations as mechanically determinate, as mechanically important, even
if they are completely accurate.”
Q: Isn’t this going to be an incredibly hard sell to the general
public – if you have Britain tipping into recession and the Bank of
England turning off the QE taps ?
Posen: “OK. First point is we are not turning off the QE taps.
We are keeping the same amount of water, just not adding to the flow of
water.”
“The amount of loosening, the setting of monetary policy, is a
function of the size of the balance sheet not the flow, I mean to a
first order – flow matters, but to a first order.”
“Second, in terms of a sell to the British public, yeah,
life is hard and we just have to try to be honest and to do the right
thing and it would have been nice if we were confronted with this right
now after other things but as the saying goes ‘You play the hand your
dealt’.”
Q: On what parts of the economy/data are distorting the growth
picture ?
Posen: “Just going by the minutes and, actually, on these issues I
am very much in keeping with the view the minutes expressed, the
construction numbers, in particular, looking backwards, are very odd.”
“When we didn’t have a terrible winter, and we didn’t have falling
house prices, the way we did last year – that somehow we had a far
worse decline in construction this year than in the same months last
year, that is just odd. It is not impossible, but it’s odd.”
“And it’s also odd that it’s so large (an effect). Construction is
only one piece of the economy.
“In 2008 in the midst of the world’s great disaster, you could
maybe understand why construction effects the whole macro economy. ”
“In 2012, the idea that construction, which already has purged huge
numbers of firms and employees is somehow contracting further again is
not impossible but it is just odd.”
“Then there is the stuff that you all have to keep reporting on,
and it is really annoying and this one of the many reasons the Governor
got to have fun with the House of Lords committee, is when you have
government holidays, and long weekends and people taking time off work,
then the amount of output in the economy temporarily goes down.”
“It doesn’t mean anything in any fundamental sense about the trend
in the economy.It doesn’t mean anything about the productive capacity of
the economy, it doesn’t mean anything about the skills of those
workers, it doesn’t mean anything about the security of their jobs.
No-one is going to say ‘I am not going to invest in Britain because
there are an extra three bank holidays this year.”
“And that is why, even though in a literal, statistical sense, it
seems crazy but if you take two days out of a given quarter and there is
only … 50 or 60 (working days in a quarter) you take three days out,
that is 5%.”
“Again, play the hand you are dealt. That is the reality and the
numbers. But there is truth and it is different from the numerical
reality.”
Q: Are you going to be able to get the public to focus on core
growth and core inflation ?
Posen: “I think we have been successful in getting the public to
focus on core inflation for the right reasons. We were honest about it.
The case for doing it is a legitimate case. The public is not stupid and
we provided them with enough information to make the judgement.”
“It doesn’t mean everybody has bought it and it doesn’t mean we can
hide behind it and I think I have been very clear even in my own case
… which series of core inflation I am talking about and what happens.
You can’t hide behind it but … one of the things I am proud of,
certainly on the Bank of England committee, and proud of the way the
British economy has functioned, is we managed to communicate that and
make the right policy on that basis.”
“Now, it is absolutely fair to then say, is that going to work this
time, especially since we just did that? The answer is I don’t know but
again … that is all we got.”
“In the end we have to do what we think is right and try to explain
it as best we can. ” “It sounds very anodyne. The drama is exactly what
you have identified. That we don’t know how the public are going to take
it.”
–London newsroom: 4420 7862 7491; email: drobinson@marketnews.com
[TOPICS: M$$BE$]
