The balance between hawks and doves on the Bank of England’s Monetary Policy Committee has far-reaching implications for Britain’s economy – currently at a critical juncture, with slowing growth, subdued consumer spending, rising unemployment, a stagnant housing market, and inflation above target level.
For the past two months, the MPC has unanimously voted to keep interest rates at 4.5%. But this apparent harmony belies a deepening schism: the committee is broadly split between those most concerned about the risks to economic growth and those convinced rising inflation is about to be a problem. In August, the doves group held sway, outvoting the hawks by five to four. What next? Here we take a look at who thinks what on the committee.
MERVYN KING: Governor
Joined: became governor July 2003
Avian status: hawk of hawks
Voting record: this August, King became the first governor to cast his vote on the losing side since the 1997 formation of the MPC – he was strongly opposed to the quarter-point cut to 4.5%
Mervyn King taught at Harvard, MIT and the LSE before joining the Bank in 1990 and forging a reputation as a monetary hardliner and ‘inflation nutter’. In 1992, King was one of the first to outline the opportunity that Black Wednesday (when Britain was forced out the ERM) provided the Bank in terms of setting independent inflation targets. Later, King was the chief architect of the Bank’s quarterly inflation report. In a speech last month, King stated the Bank had been caught off guard by the latest price surge. Elsewhere, he downplayed Britain’s economic malaise: “the wheels are not coming off the economy”. Already nearly halfway through a five-year term, some say his increased willingness to criticise the Chancellor on fiscal policy, coupled with his desire for a life beyond the Bank, means he will be a one-term Governor.
RACHEL LOMAX: deputy governor responsible for monetary policy
Joined: 2003
Avian status: hawk
Voting record: Lomax stamped her mark on the committee during her first meeting in July 2003 when she stood alone in opposing a rate cut, thus achieving the distinction of making even Mervyn King appear dovish. In recent months, she has consistently voted against a cut
A Cambridge graduate often described as “ferocious”, Lomax made her name in the Treasury during the 1980s as principal private secretary to Nigel Lawson. She is remembered for going through other departments, such as the DSS – where she was permanent secretary – like “a dose of salts”, but fared less well at the World Bank in the mid-1990s, where she fell out with president James Wolfensohn. Although known as a hawk, Lomax’s most recent pronouncements have indicated a tendency to hedge her bets. In a recent speech, she tempered concerns about the effect of oil prices on inflation with some decidedly dovish remarks about the weakness in retail spending.
SIR JOHN GIEVE: incoming deputy governor responsible for financial stability
Joining: January 2006
Avian status: suspected dove
The surprise resignation of outgoing deputy governor Sir Andrew Large (the former head of Barclays Capital, who leaves this December to return to the private sector, pictured above right`) has caused some to predict a major tilt in the power balance between the hawks and doves. Over the course of 36 meetings, arch-hawk Large only once (in July 2003) argued for a cut. One of the first to warn of the dangers of the housing bubble and build-up of consumer debt, Large was determined to deflate the credit boom. By contrast, the appointment of ‘consensual civil servant’ Sir John Gieve as his replacement caused sterling to fall on expectations of a laxer interest-rate policy. As a permanent secretary at the Home Office and former Treasury mandarin, some in the City see Gieve as a Gordon Brown “stooge”. In reality, little is known of his views on monetary policy. Moreover, as Rachel Lomax has repeatedly demonstrated, a Treasury background does not necessarily indicate a tendency to steer monetary policy in a way that suits the Chancellor.
CHARLES BEAN: chief economist
Joined: 2000
Avian status: dove
Voting record: Bean stands out as the only Bank insider consistently to back the case for interest rate cuts
The publication of the Bank’s August inflation report, with its bullish economic growth projections, was a direct counterblast to Charles Bean’s forecasts of where the economy is going over the next two years, highlighting a dangerous schism between the Bank’s chief economic forecaster and the governor and deputy governors. Bean (pictured below) was one of the first to argue that inaction over rates “risked the slowdown in consumption becoming more entrenched” and that “a small reduction in rates now might obviate the need for a larger reduction in interest rates at a later date”. There is little indication that he has changed his mind.
PAUL TUCKER: head of markets
Joined: 2002; membership renewed this year
Avian status: hawk
Voting record: voted with the minority against a cut in August; prior to that, voted for rates to remain on hold at 4.75%. He bucked the consensus for no change in February, March and April by voting for a rate rise
Described as “very capable, very ambitious and seriously bright”, Tucker joined the Bank straight from university in 1980 and has been tipped as a future governor. Very much an inflation hard-liner, he is seen as a pivotal member of the committee’s hawkish axis. Speaking to the Commons Treasury Committee last month, Tucker acknowledged the economy’s downside risk came from reduced consumption, but nonetheless played up “the upside risk to inflation through the oil price É [and] through wage bargaining”. He describes the current 4.5% interest rate as “broadly neutral to slightly accommodative”.
STEPHEN NICKELL: external member
Joined: 2000; membership renewed 2003
Avian status: dove
Voting record: having voted with the hawks in June to keep rates on hold, Nickell switched tack in July and August, voting for a cut
Probably the MPC’s most colourful member, Professor Nickell is known for being an old friend of Marianne Faithful and Pink Floyd’s Roger Waters. He was also Peter Mandelson’s maths teacher. Britain’s acknowledged expert on the labour market, Nickell is best known in economics for work in developing the concept of the non-accelerating inflation rate of unemployment (Nairu). He retires in May next year to become warden of Nuffield College, Oxford. Nickell has repeatedly expressed his belief that there is a “serious risk” the Bank’s 2.7% growth forecast will be undershot and is now viewed as a likely proponent of further cuts. “The history of monetary policy in the UK is a history of doing things too late,” he told the FT in September.
DAVID WALTON: external member
Joined: July 2005
Avian status: dove-like, to date
Voting record: voted for a quarter-point cut at his first meeting in July this year, and again in August
Regarded as a hawkish replacement to the MPC’s arch-dove Marian Bell, the former Goldman Sachs chief economist’s appointment this year won universal support. For many years an expert witness to the committee, Walton immediately confounded the pundits by siding with the doves. There is no obvious indication that Walton is likely to change tack: he continues to stress the serious downside risks to the Bank’s growth forecasts set out in the August inflation report. While acknowledging that the rise in inflation had been sharper than the MPC had expected, he stressed that it was from a low base. “You shouldn’t read too much into the current rate of inflation,” he told a Commons committee recently.
RICHARD LAMBERT: external member
Joined: June 2003
Avian status: hawkish dove
Voting record: having previously kept pace with the hawks, Lambert was viewed as the key swinging voter for a cut in the August split
As the MPC’s only non-economist (he studied history at Oxford before joining the FT), the former FT editor’s appointment to the committee was controversial. Lambert argues that his experience as a journalist enables him to bring a “broad view” – an opinion backed up by Mervyn King, who remarked that he’d “rather listen to a few minutes of Richard Lambert getting to the nub of the question” than to 30 minutes of rambling from a technical economist. Lambert has expressed his unease with the Bank’s optimistic growth forecast: for targets to be met, he said last month, consumer spending would have to pick up “quite quickly, quite soon”. Yet given his past hawkish tendencies, pundits believe Lambert’s current dovish stance may yet shift.
KATE BARKER: external member
Joined: 2001; began her second three-year spell in 2004
Avian status: dovish
Voting record: joined the call for interest rate cuts in July and again in August
One of the MPC’s most experienced members, Barker was slated by some as a “token woman replacement” for DeAnne Julius when she joined in 2001, after a stint as chief economist at the CBI; prior to that she was an economist at Ford. Her business background is seen as a decided asset to the committee’s deliberations. Following her year-long review on behalf of the Treasury, Barker is also considered an expert on the housing market. As for future direction, Barker has been keeping her cards close to her chest. But her background in business may make her sympathetic to the prospect of cuts next year.
