Governor of the Bank of England Visits Wolverhampton
A team of representatives from the Bank of England visited Wolverhampton last night for the Wolverhampton Citizens’ Panel, where they answered questions from a cross section of the local community on topics such as quantitive tightening, the cost of living and the labour market.
Prior to the event, West Midlands Magazines’ Editor, Simon Archer, was given exclusive access to interview, the Governor of the Bank of England, Andrew Bailey.
Editor, Simon Archer with the Governor
Here’s what he had to say:
SA: So being the governor of the bank of England is one of the most powerful jobs in the country. What does a typical day look like for you?
AB: It’s usually quite long. Well, so a lot of the time I’m at the bank. But I also have to tell you that trips like this around the country are the most fun part of the job. And particularly this one, which I’ll come on to. I think I told you my family actually come from here. My parents originally came from Birmingham and I’m a West Brom supporter.
SA: Right, we’ll end the interview there then!
AB: Sorry about that.
SA: You’re in enemy territory.
AB: Yes, but tomorrow, we’re going to the Hawthorns, for a business round table.
SA: Not the Molineux?
AB: No, not the custard bowl. Isn’t that what West Brom fans call it?
SA: Yes, that is one of the names they give it!
SA: Right, now some slightly more serious stuff. With interest rates at 4%. How do you balance controlling inflation with the impact on mortgage holders and small businesses?
AB: So, inflation is at the moment is above our 2% target and our job is to bring it down and there’s frankly a very delicate balance at the moment between the things that have pushed inflation up, the sort of what I call the underlying state of the economy that have been caused by a few things like water bills going up, vehicle tax going up. We are seeing food prices going up and we have seen some increase in the costs of employment because the national insurance changes. So that’s, you know, we’ve got to bring that down. We think it will come down next year. It’s probably going to go up a little bit in the next reading, but we think it will come down from there. And obviously our job is to bring it down against going the other way. I think we are seeing, particularly in the labour market, some softening going on at the moment. We’re seeing a bit of that in sort of employment numbers.
SA: What do you mean by softening?
AB: It’s weakening a bit. You know, people, I think, are finding it probably harder to find jobs at the moment.
SA: Yeah. Do you think that’s connected to the national insurance increase making employers less keen to take people?
AB: I think it is. I think that’s part of the story. Obviously, us having interest rates at 4% is part, to be honest, is part of the story. Policy is what we call restrictive at the moment. That’s because we’ve got to bring inflation down. So, we’re having to balance that because we obviously want to bring inflation down. But, you know, we’re very focused on what it does to the economy. It’s interesting post Covid, how many structural changes have gone on in the economy and how much we’re still working through those structural changes. To be honest, one of them is that there’s a lot more people not working at the moment now. They’re not registered as unemployed. Unemployment has risen a bit, but it hasn’t risen as much as you might think.
I’m referring to people who are what we called inactive. They’re registered as not in work and not seeking to be in work. That’s quite a new development, actually. And understanding what the sort of dynamics of that are, what parts of the population it is, what’s causing it, what effect they have on the labour market and are they going to sort of start looking for a job at some point?
SA: Do you think that’s something to do with COVID and people re-evaluating their work life balance?
AB: I think there’s some of that, yes, but it’s older people, particularly older men and actually young as well. There are more young people not in work. The middle part is actually not so different from what it used to be. So, understanding the impact that has, what their plans are, how they affect the labour market is also important to us.
People are saving more at the moment. Again, it’s not evenly distributed across the economy, of course, because lots of people in the economy haven’t got the income to save, but those who have, the saving rate is actually about double what it was pre-Covid at the moment. People are being quite cautious at the moment. Of course, that affects spending, so that has an effect on the state of the economy because there isn’t as much. People aren’t going out as much, they’re not shopping as much, they’re not going out to restaurants and so on as much that affects the overall state economy. So, again, we have to balance all these things because we want to bring inflation back to target, but obviously want to do that within an economy that has some sustained activity in it.
SA: I wouldn’t dare to question the Governor of the Bank of England. It’s just that I hear this statement about people aren’t spending so much. But I go out to a retail park down the road called Bentley Bridge and it’s often hard to get on the car park. On a. Any night of the week, the car parks are rammed, so there’s a cinema, there’s a few restaurants, bowling alley. So, somebody’s got some disposal income.
AB: Well, that’s interesting and this is one of the reasons we come around, because we learn things by coming here that we put into our overall map of what’s going on. Because the official data will tell you one thing, but there’s always puzzles in it and so you learn a lot from coming around the country, talking to businesses, talking to community forum panels.
SA: Wolverhampton and the wider West Midlands have a strong manufacturing and service base. How do national monetary policies filter down to support businesses here?
AB: Well, again, you know, we are very interested and focused on what’s going on across the country at the level of individual businesses and individual communities. We talk to businesses a lot and that’s what I’ll be doing tomorrow. We want to know what they’re experiencing and we want them to tell us what the impact of what we do is. What’s the impact of interest rates? How easy are they finding it to get to borrow when they need to borrow? What are they getting from the banks? Because the other big job the bank of England does is financial stability and regulate the banking system. So, we’re very interested in that. So, as I say, we take it all back. And we regularly sit in our policy meetings and say, I’ll say, well, when I was in the West Midlands, this is what I heard and are we really reading this correctly or not?
SA: Okay, thank you. If you were speaking directly to families in Wolverhampton who are worried about their mortgages, rent or energy bills, what reassurance could you give them? And really I’m referring to the future.
AB: Well, the reassurance I want to give them is that our job is to bring inflation down to our 2% target. And we will do it. We’ve been able to cut interest rates from the peak and my expectation is that I think we will see a gradual reduction in inflation over the course of the next months, going through next year. I think there is still some further journey down in interest rates to go. But exactly when that will be and how much it will be will depend on the path of inflation going down.
The other thing I would say is that we are very sensitive to the cost of living. I think the cost of living is a bit different. Inflation, of course, affects it. It’s the principal fact, but it is about price levels, what stuff costs in shops. Now, we can’t directly influence where it is today, but we can obviously affect where it goes tomorrow. I’m always very interested to know what’s driving it. And although we’re not government, I do talk to ministers a lot and sometimes I do say to them, look, you just need to know this is what’s going on.
SA: I think a lot of people were saying this two or three years ago, when price of foodstuffs started to increase, a lot of organisations seemed to be increasing their price, not because they needed to, but because they thought, well, everything else is going up, so now is a good time to whack an increase on. And that was concerning, and I know you have no influence or control over that, but that was a worry because obviously it seemed like every foodstuff in the supermarket had gone up significantly.
AB: And it’s interesting with food because it’s very prominent. For the simple reason, we all buy it every week. So, there are some things in the inflation basket that we only buy very occasionally, if at all, like cars and houses. There are certain foodstuffs where the prices have gone up worldwide because crops are crop failures in parts of the world. But also labour costs have gone up in the food industry. You know, it has been affected by the national insurance increase, it is affected by the living wage. And that’s an important part of policy. It is also affected by energy costs. Because, you know, one of the things we looked at a few years ago, is how much energy is consumed in producing packaged food. So again, energy costs do affect.
SA: Out of interest, how many people sit on the committee that decide the interest rate?
AB: Nine of us.
SA: Do you use AI to help with that?
AB: One of the things I said is if you’re in this line of business and you have a large amount of information, AI should help us. I mean, we should put it to work, in a sense. We’ve got to work out how to do that. So, we do use it. I use it sometimes to edit my speeches, not to write them, but because I actually find it pretty useful. I sometimes write a speech and it’s, you know, 500 words longer than the delivery time.
SA: Next question: Talk of digital currencies and changes in how we pay for things. What might the future look like for money, as in cash in people’s pockets?
AB: Well, there’s another aspect of the Bank of England, the thing that unites everything the bank does is money, really. When I go to schools, we say we’re in the money business, really. However, one thing I will say is I think we all use cash less than we used to.
The interesting thing for us is that we know obviously the total value in circulation because it’s on our balance sheet and it hasn’t gone down.
SA: That was going to be my next question. Are you printing less notes because there’s less out there or less being used?
AB: So we’re printing fewer notes, but not because there are fewer out there, but because they last longer, because when we switched to polymer, they wear longer, but the stock out there has not declined at all. Interestingly, and this is true in other countries, it’s not just true of this country. Now, the thing we’ve said is that as long as people want cash, they can have cash and we will provide it and people tell us they do. And I think that’s reasonable. I think there’s a number of reasons why. I think a lot of people don’t feel totally confident relying on electronic systems. I like to have some cash in my pocket. Because let’s say in Spain a few months ago, they had a complete blackout after a power failure.
SA: Well, the next question is going to be, given what’s happened at JLR is there a concern that one of the big banks could be hit by a cyber attack?
AB: So just. I’ll finish on payments. We are working with the banks on digital payments because I do think digital technology has a lot of opportunities and I think there is a big future in that. I think it can help to protect against fraud. I think it can help small firms with late payments. So, we should do it. But we’re not going to take cash away.
AB: I think, you know, this is a world of cyber risk. This is one of the biggest risks to the financial system. We’ve spent a lot of time working with the system to protect against cyber risk. Because it’s the thing that I always say, what’s come up the league table of risks since the financial crisis, if you ask me what. It’s cyber. And it’s the one that you have to keep working against it because you’ll never conclusively mitigate it because the thing keeps evolving.
SA: Final question: So, what is the information or news that you check first thing in the morning and last thing at night on your phone or laptop?
AB: Well, I have a variety of news feeds come through on my phone. I’ve got all sorts of financial market prices, so I do check those, sadly, when I get up in the morning. So I do look at those and of course, the West Brom results.
The forum was held at The Workspace at All Saints Action Network, All Saints Road, Wolverhampton on Tuesday 23rd September.
Use the link here to find out more about community forums; www.bankofengland.co.uk/about/get-involved/community-forums