Brown names panel to set interest rates

Chancellor breaks tradition and goes for 2 July Budget as he appoints external members to Bank of England's monetary committee
Click to follow
The Chancellor put an end to speculation on two fronts yesterday, naming 2 July as the date for his first Budget and announcing the four outside members of the Bank of England's Monetary Policy Committee (MPC) which will be responsible for decisions on interest rates.

Professor Charles Goodhart, Dr DeAnne Julius, Sir Alan Budd and Professor Willem Buiter will join Eddie George, Governor of the Bank of England, his two deputies and two further Bank members in a nine-strong committee to determine monetary policy.

The decision to hold the Budget on a Wednesday marks a break with the traditional Tuesday speech in order to avoid a clash with the handover of Hong Kong to China on 1 July.

The MPC appointments, which were seen as non-political and likely to have a neutral impact on policy, were welcomed by City economists. Eddie George also endorsed the appointments, adding: "I believe they will make a major contribution to the quality of the Bank's monetary analysis and to the authority of our monetary policy judgements."

The role of the new committee was announced by the Chancellor on 6 May when he surprised observers by setting the Bank of England free to determine the level of interest rates. It will be accountable to the Court of the Bank, which was strengthened yesterday by the appointment of Christopher Allsopp, a macroeconomics specialist at New College, Oxford.

He replaces Lord Simon, the former BP chairman, who joined the Government recently as a trade minister with special responsibility for European competitiveness.

The committee will have little time to prepare for its first monthly meeting, which takes place this Thursday and Friday. Professors Buiter and Goodhart are expected to vote at the meeting - the other two will not join until the autumn.

Economists were divided yesterday on whether a quarter-point rise in interest rates would be announced at midday on Friday. Andrew Cates, an economist at UBS, said he expected the first meeting to result in rates being left alone for the time being. He said: "Economic data over the past month has not been strong enough, in our view, to warrant a tightening of monetary policy, and we believe they will wish to wait and see what Gordon Brown delivers by way of fiscal tightening in his mini-Budget."

The appointments of Professor Goodhart and Sir Alan Budd were singled out as particularly welcome.

Professor Goodhart, currently Norman Sosnow Professor of Banking and Finance at the London School of Economics, has been called the best monetary economist in the country by his peers. As a former senior adviser at the Bank of England, he already has considerable experience of the workings of the institution.

Sir Alan, chief economic adviser at the Treasury since 1991, is associated with the economic successes of the previous government and his appointment was viewed as giving a degree of continuity to policy making. Previously group economic adviser at Barclays Bank after 14 years at the London Business School, he has also held appointments at the Securities and Investment Board and the Stock Exchange.

DeAnne Julius, a US citizen who has lived in Britain since 1986, has been chief economist at British Airways since 1993, following a career that included spells at Shell and the World Bank in Washington. She is less well known in the City than the other three but is expected to bring an industry viewpoint to discussions.

Willem Buiter, currently Professor of International Macroeconomics at Cambridge University, has held academic posts at Yale and Princeton in the US and at LSE and Bristol University. Described as a "brilliant" economist, he is known to have strong, if unorthodox, views on monetary union. While favouring the currency union, he has described the Maastricht criteria on fiscal deficits as nonsense.

Gordon Brown's "welfare to work" Budget, the first by a Labour government for 19 years, will take place just two months after the landslide win on 1 May, with attention focusing not on whether he will tighten fiscal policy, but by how much.

Economists said yesterday he will need to perform a difficult balancing act, keeping Labour's election promise not to raise the overall tax burden on ordinary people and demonstrating that the party can make a difference to unemployment and the quality of key public services - all while keeping financial markets happy.

A central plank of the Budget will be a windfall tax on privatised utilities that will be used to fund a programme to cut unemployment. That will form part of an expected pounds 4bn net fiscal tightening, with up to half of that aimed at the consumer.

Comment page 21