Examination of witness (Questions 20-39)|
TUESDAY 1 MAY 2001
MS KATE BARKER
20. Were you also interviewed by the Chancellor?
(Ms Barker) I did not meet the Chancellor.
21. You did not meet the Chancellor?
(Ms Barker) No.
22. What was the last MPC decision that you
(Ms Barker) Are you asking me the last MPC decision
that I personally disagreed with?
(Ms Barker) I am sorry, I apologise for hesitating,
I am hesitating because I am trying to think back. Let me just
clarify. I personally thought that the cuts in interest rates
this year and the timing of them have been about right and before
that, of course, we had very long periods when the interest rate
was on hold and, as a matter of fact, I thought that was right
as well. I think the most recent time when I can definitely remember
I would have had a strong disagreement with the MPC decision is
probably going back as far as the autumn of 1998 when the Asian
crisis began and I did personally think the MPC should have cut
rates a little bit earlier than they did. In the end they cut
rates significantly, and, of course, it was incredibly helpful
for the economy. I am sorry to have taken so long to think about
24. No, I appreciate it is difficult for you
to distinguish between a personal view and a CBI view.
(Ms Barker) I am grateful to you for making that distinction.
25. Can we conclude, therefore, broadly, since
the autumn of 1998 you have been happy with the MPC decisions?
(Ms Barker) Broadly I would think that was true. I
would not, however, wish that to imply that I would necessarily
have voted absolutely with the majority, I can perhaps think of
other occasions where I might have been a little different from
the majority on timing. Certainly I cannot think of any occasion
where a decision was announced and I thought "I really strongly
disagree with that".
26. You see, some commentators have characterised
you already, before you have even acted, as a dove. Has there
been an occasion since the MPC began when you have been on record
calling for higher rates?
(Ms Barker) You rightly drew a distinction between
my personal views and my role at the CBI. Can I just put my CBI
hat on briefly here. It is certainly the caseand journalists
point to this from time to timethat there is not an occasion
when the CBI has been on record as calling for higher rates. It
is, however, true, as I said earlier, that what business organisations
tend to do, in situations where perhaps they actually do feel
that rates should be higher, is to say something after the event
when they make some comment which indicates that they regard that
as being a sensible decision.
27. Speaking personally now do you think there
has been an occasion in the last four years when the interest
rate should have been higher?
(Ms Barker) Should have been higher than the MPC set
them or that the MPC is right to raise rates?
28. Yes. Should have been higher than the MPC
have set them?
(Ms Barker) Again, I think it would come down to points
of timing. It would be a slightly odd thing to say now, given
that we have just had a long period when inflation has been running
below 2Ö per cent and, after all, there was a lag between
the MPC coming into being and the impact on decisions. I find
it quite difficult to think myself back, honestly, into periods
back in 1998 and think "would I have said the rate should
have been higher then". I am not trying to be evasive.
29. You are familiar with this categorisation
of hawks and doves. You have been involved in this and have experience
of this and have appeared before this Committee. Would you accept
you are a dove?
(Ms Barker) I am always slightly uneasy about the
description of hawk and dove and I am sure anybody ought to be.
I am always uneasy with it because of the implication that a dove
is somebody who might somehow wish to be soft on inflation. Nobody
who is asked to join the MPC and has read the remit should be
under any illusions that they are asked to do anything else than
achieve the target. In that sense I am not quite sure it is right
to describe anybody on the committee as a hawk or a dove. In the
sense of what is going on in the economy at the moment, I suppose
the people who are described as doves are people who have taken
the view that a number of changes in the economy, labour market
reform, the advent of the new economy have meant that economic
growth has been able to continue for longer than a few years ago,
economists would have thought, without leading to inflationary
pressures. In that sense I would say I incline towards the dovish
30. You are replacing one of those people, are
(Ms Barker) I am replacing one of those people but
when I discussed my appointment I did not discuss it in terms
of replacing somebody because I had precisely the same views.
Indeed, I should point out the Treasury is very careful not to
ask prospective members about their views.
31. The Treasury does not?
(Ms Barker) It does not ask you about your generalIt
obviously knows my views but it does not ask you.
32. You are not interrogated.
(Ms Barker) They do not interrogate you this kind
Mr Fallon: Feeble lot.
33. Can I take you back to evidence you gave
us on 13 March where you said "I think there is some scope
to cut interest rates a little further". Then if I could
paraphrase the bit that came after that. It was because you thought
there was a chance inflation might fall below 1Ö per cent.
Then you also went on to say ". . . but because I believe
the outlook for inflation two years hence is more favourable".
Now, I am trying to square that with the answers you just gave
to Mr Fallon when you had to think all the way back to the autumn
of 1998 before you thought you might have differed with the decisions
the MPC made. So you told us you believe there is room for interest
rate cuts. You think there is a probability of inflation going
below 1.5 per cent. But if the MPC had made all the right decisions
it should not be in this position, should it?
(Ms Barker) I did qualify my answer slightly
to Mr Fallon. When I came to talk to you in March we were talking
about the Budget. One point I would like to make is that since
the previous MPC decision in March, where I seem to recall they
held rates, announced around the same time as the Budget, rates
have been cut. It seems to me, having taken account of the Budget,
and it is always quite difficult to assess the Budget within 24
hours, certainly for an external commentator, the Budgetwe
were discussing it in its contextwas not adding to demand
or whatever in the economy such as to put the inflation target
at risk. Therefore, there was a possibility that rates could be
cut a little further without causing difficulty to the inflation
target at that stage. I am sure you are right in saying that I
said there was a risk of inflation falling below 1.5 per cent
but I should say I did not think then, and I do not think now
that was a very significant risk. Certainly it was not my base
34. You declared this optimistic view about
the outlook for inflation two years out. Presumably you still
have that view?
(Ms Barker) I am terribly sorry, can you remind me
what it was?
35. Yes. You were giving evidence along with
a number of other experts and you gave us two reasons for saying
why you thought there was scope for interest rate cuts. The first
you said there was a chance it might go below 1Ö and then
you said you believe ". . . the outlook for inflation two
years hence is more favourable than those of my colleagues . .
.". You were clearly taking an optimistic view about the
two year horizon for inflation; presumably you still take that
(Ms Barker) Yes. I am grateful to you for making that
clarification because although I always remember coming in, I
do not remember every detail of the session. I seem to remember
that on that occasion the three people I was giving evidence with
were relatively pessimistic in my view about inflation. One or
two of them in particular were talking about actually risks to
the target at the two year horizon. I wanted to distinguish myself
from that view, that I was pretty confident that the inflation
target would be met within the two year horizon, and I thought
that might leave the way open to further cuts in interest rates.
We have, of course, subsequently had a cut in interest rates.
36. We have had one further cut since then.
You were talking quite long term and, of course, the MPC does
have to think at least two years out when it makes its decisions.
Are you saying that you think the subsequent 25 basis point reduction
there has been since then is the limit of the scope for lower
(Ms Barker) I would want to be clear on this. When
you are not a member of the MPC it is more possible to talk about
the path of interest rates over a number of months, and so one
often does, for example you have to do it for forecasting purposes.
You have to think through where, if your base case is met, interest
rates might go, but it is always rather conditional. On the MPC
I think you are much more taking decisions month by month, so
it is not inconsistent to have a view that it is possible that
rates may fall further in the future but not to believe that it
would necessarily have been right, for example, to cut them in
April. It would obviously be quite wrong for me to comment today
on what I now think the future course of interest rates should
be in the sense that I will now be making these decisions month
by month on the basis of discussions with my colleagues. That,
after all, is how the MPC is there to work.
37. Have you read the minutes of the last meeting
of the MPC?
(Ms Barker) Yes.
38. You will see that there was quite an argument
between members as to whether the cut should be 25 basis points
or 50 basis points.
(Ms Barker) Yes.
39. Had you been on the MPC at that meeting,
which side of the argument would you have been on?
(Ms Barker) That is quite a difficult question for
me to answer, and a slightly unfair question for you to ask. It
is difficult for me to answer in the sense that when the MPC meets
and has that discussion they, of course, have the benefit of a
large amount of data being presented to them and also the benefit
of an ongoing discussion. My view, although I have to say it is
a conditional one because I was not present at the meeting so
I was not privy to all the arguments, is that on the whole at
that meetingyou are asking me to think back into thisI
would have been more inclined to have agreed with the majority
vote at that meeting. I would not wish that to be taken as implying
anything about how I might feel when I join the committee in June.
3 Minutes of Evidence, 2001 Budget, HC (2000-01) 326-i
to iv, Q41. Back