OUTLOOK: Bank's information job is not yet done
Wednesday 18 January 1995
Analysts who complain about confusing information must be too young to remember the days when a cold towel and the unofficial help of somebody well informed inside the Bank was the only way to understand what a speech by the Governor actually meant.
The summit of the Bank's art was to criticise the Treasury or some City group such as the clearing banks without being crudely obvious - indeed to give the attack some sort of deniability if challenged by an angry vested interest or a politician. Indeed,bankology was Britain's own version of Kremlinology, with a skill and language of its own.
Mr Pennant-Rea - by his own admission - used to make up articles about monetary policy for the Economist, because the subject was so impossibly inscrutable. Eddie George, in his days as deputy governor, made a determined effort to put plain English into speeches and ensure the Bank said what it meant.
This led to a marked improvement in understandability, which has accelerated with the publication of inflation reports, monthly minutes and all the new paraphernalia of monetary management.
There has been the odd disaster, such as when the Bank's off-the-record briefing on the inflation report steered the press in the opposite direction to the market's reading of what was said on paper. As a consequence, the Bank has been looking at whetherto continue the briefings, drop them - or even put them on the record.
One odd side-effect of this genuinely increased openness is that the markets are occasionally determined not to accept the simple explanation. The desire is to read more into speeches than is actually there. On Monday, the Governor's suggestion that he could not say whether or when he would raise interest rates again was taken as an easing of monetary policy concerns. He used virtually the same formulation in a select committee before Christmas, and was basically telling it as it is, rather tha n hinting at the precise timing of a rate rise. But with weak industrial output figures last week, investors jumped to conclusions and assumed wrongly that the heat was off.
While improved communications by the Bank are tremendously welcome, Mr George should not run away with the idea that the job has been done.
As his deputy said yesterday, in defence of the uncertainty in policy-making, monetary policy is somewhere between guesswork and a science. A large number of indicators are fed into the decision process. There can never be a rigid formula for assessing these and deciding interest rate policy. But the Bank should at least publish a much more detailed description of the framework it uses for analysing the mass of information.
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