Select Committee on Treasury Minutes of Evidence

Examination of witness (Questions 20-39)



  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 disagreed with?
  (Ms Barker) Are you asking me the last MPC decision that I personally disagreed with?

  23. Yes?
  (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 it.

  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 case—and journalists point to this from time to time—that 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 camp.

  30. You are replacing one of those people, are you not?
  (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 general—It obviously knows my views but it does not ask you.

  32. You are not interrogated.
  (Ms Barker) They do not interrogate you this kind of way.

  Mr Fallon: Feeble lot.

Mr Plaskitt

  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".[3] 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 Budget—we were discussing it in its context—was 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 case forecast.

  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 view?
  (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 interest rates?
  (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 meeting—you are asking me to think back into this—I 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

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2001
Prepared 24 May 2001