Don't pigeonhole me. I'm just a cautious expansionist, says the MPC's Mr Bean

Charles Bean, the latest recruit to the Monetary Policy Committee, explains his views on interest rate policy to Diane Coyle, in his first interview since taking up the post
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The Independent Online

You might expect a Hull City supporter to be very much his own man, and so it is with Charles Bean, the Bank of England's new chief economist and latest recruit to the Monetary Policy Committee. He resolutely resists being described as either a hawk or a dove, in the avian metaphor that has a stranglehold on MPC-watchers.

You might expect a Hull City supporter to be very much his own man, and so it is with Charles Bean, the Bank of England's new chief economist and latest recruit to the Monetary Policy Committee. He resolutely resists being described as either a hawk or a dove, in the avian metaphor that has a stranglehold on MPC-watchers.

"Clearly, it's sensible to change one's views as new information comes in. The biggest mistake would be to pigeonhole people to the extent that they feel they have to live up to their reputation as hawkish or dovish. That would militate against them taking the right decisions," he says, in his first interview since taking up the job.

Just a few hours after his appointment was announced, he was approached by a wire service journalist in Australia, where he had been visiting the central bank, and asked what he thought ought to happen to UK interest rates. Well, they might have to go up a little bit, Mr Bean mused thoughtfully. Nothing too dramatic.

However, his comments had been translated into extreme hawkishness by the time the next day's British papers were being rustled over breakfast tables.

It was an swift lesson for an academic, a professor at the London School of Economics, in the obsessiveness with which his views on the economy will now be dissected.

"I can understand the attraction of the hawk and dove image when you're trying to understand where people may stand, and there might be some on the committee who are always on one side of the fence. But the members of the committee look at the whole range of evidence," he says, diplomatically.

He highlights one issue in particular that raises difficult questions of monetary strategy, and that is whether Britain is going to experience anything like America's New Economy productivity surge. His colleagues Sushil Wadhwani and DeAnne Julius have argued that this possibility justifies lower interest rates than might otherwise be appropriate. Mr Bean is more cautious, however, neither enthusiast for the New Economy nor sceptic.

"My colleague Sushil Wadhwani's phrase 'give growth a chance' caught the public imagination, but I think that's a little bit exuberant," he says. "So far, productivity growth in the UK has been pretty muted. The US is the only place so far that has a new economy." But he adds: "For a long time there wasn't much evidence of rapid productivity growth in the US either and then all of a sudden in 1995 it showed up. That's a reason for optimism, looking forward, that it will pick up in the UK. And this is the sort of time we ought to be starting to see it in the data."

How does this middle way translate into interest rate votes? "It is a difficult path which avoids stifling any growth from this source but at the same time doesn't let the economy run into an inflationary boom." After a moment of reflection, he comes up with a competing soundbite: "cautious expansionism".

While the new economy question probably sorts the sheep from the goats - or hawks from doves - on the MPC, the committee's biggest headache is the strong pound. The pain the exchange rate is inflicting on manufacturers trying to export goods explains a lot of the criticism voiced by industry over interest rate decisions.

"I have consistently said I thought the euro would recover," says Mr Bean. "I'm still willing to put money on it recovering. but exactly where to or over what time frame I'm less sure than I was." He adds: "An exchange rate equivalent to 3.0 [against the German mark], or 2.95 if you want to go back to the beginning of the decade, might actually be sustainable in the long run." He notes that exporters are increasingly willing to admit they can live with such an exchange rate. There have been complaints about the MPC raising interest rates, but, he argues: "The sector that is most vocal is the sector that's being squeezed by the strong pound and the intensification of competition. When you're in those circumstances, every little bit helps."

But he argues firmly against the MPC trying actively to achieve a lower exchange rate. "You can end up moving interest rates a very long way to have the desired effect, and that would run the danger of putting your primary objective for inflation off course."

Nor does he favour putting industry representatives onto the MPC, saying: "Industrialists would see themselves as representative of their industry or region. it would be a retrograde step." It is not as if their views are ignored: "The Committee takes a lot of notice of business surveys. I've been quite surprised at how influential business and consumer confidence surveys are. I hadn't expected that."

Like other MPC members, Mr Bean worries that the role of good luck in achieving the past few years of low and stable inflation is underestimated.

"Macroeconomic management has avoided making mistakes - give us one cheer. But people should not look at the past few years and think it's been easy. The regime hasn't really been tested yet by nasty external shocks, and there might well be shocks that we're powerless to do much about in the short term."

Still, should there be nasty shocks just over the horizon, the Bank has in Charles Bean a much-admired chief economist, one who has a vast amount of research on monetary policy under his belt. While some other MPC appointments have generated a certain amount of professional carping, his was universally warmly welcomed.

Although his football team languishes at the bottom of the third division, this devoted Hull City supporter is in the premier league when it comes to setting interest rates.

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