Select Committee on Treasury Minutes of Evidence

Examination of Witness (Questions 40 - 45)



  40. Right.

  (Ms Bell) In so far as that asset price was feeding into aggregate demand then clearly you have to take it into account and if there was a concern of disorderly unwinding then that is obviously something that has to be monitored but rather, as was my answer on the exchange rate, I am not sure it is anything that can be prejudged. I did say in my response, I think, that although the MPC has one instrument and one target, in that particular situation of asset prices if you did want to prick the bubble you would be moving policy in the same direction as you would if you were concerned that those asset prices were feeding into inflation, so there is not an inconsistency. There might be an inconsistency in the degree of movement.

  41. I hear what you are saying and note what you say about a possible effect on aggregate demand but let us just take the example of the UK housing market at the moment. You will have seen at least one view in the newspapers today from the RICS where they talk about their assessment of what could be a disorderly correction, to use your words. Just to return to this, finally, what do you think the probability is of a disorderly market occurring in the UK housing market, all things being equal so far as monetary policy is concerned?

  (Ms Bell) I think at the moment the chances of disorderly correction are probably quite slim but there could be a situation if unemployment were to rise rapidly or interest rates were to rise rapidly where it would become more of a consideration.

  42. Could you quantify that? Obviously interest rates going up could contribute to a disorderly market in the UK housing sector, which is what the RICS said today. You said "rise rapidly". Is there any way you would care to quantify the scale of the interest rate increase which could potentially trigger a disorderly market in the UK housing sector?

  (Ms Bell) I am afraid I do not have the information here and now to do that. I would just point out that the charts that you can find, for instance, in the Bank of England's Inflation Report on debt servicing in relation to income suggest that the rise would need to be fairly marked.

Mr Cousins

  43. If I understood correctly an answer you gave to my colleague, the Member for Yeovil, who was asking you about the exchange rate, you seemed to be of the view that the appropriate moment to be concerned about the level of the exchange rate was after a successful referendum decision to join. Did I understand that correctly?
  (Ms Bell) I think I was noting that you do not need to make the decision now and we do not know where exchange rates will be at the point the decision has to be made. I think there are two things that can happen in the interim. One is that the nominal exchange rate can change and also competitiveness can change in other ways through prices, so a considered decision could be made at a later date with more information.

  44. So you are confirming that your view is that you could take a decision about the exchange rate after a referendum decision to join?
  (Ms Bell) I am afraid I am not clear about the answer to that. I think in principle, yes, but in practice the level might be relevant to the decision so perhaps it ought to be made clear.


  45. Finally, could I just ask you your views on the global economy. Do you think it is now on a firm road to recovery or are there still risks that the US economy in particular may falter? With regard to the UK economy, in your answer to us in question 12 you stated that "the UK . . . does not appear to have enjoyed the productivity improvement consequent on the utilisation of . . . ICT", so in the global economy what is your view for the future of the UK economy regarding your pessimistic views of productivity?
  (Ms Bell) On the global economy I think my view is that what we have seen is a rapid turn around in the US but so far it has been driven primarily by stocks. There is some evidence of an improvement in more underlying demand but I think that needs to become more concrete to be sure of a recovery. My forecast would be that is likely to happen but I think month by month the data needs to be monitored. In relation to the UK and productivity, the commonly accepted view for some time was that the UK had not enjoyed the same sort of productivity improvements from ICT technology that the US had because the aggregate numbers, the overall productivity numbers, had not improved. I think closer examination by the IMF and also the Bank recently has suggested that, in fact, those improvements have shown through but they have been offset elsewhere and they have not improved the total productivity numbers. I would therefore be reasonably optimistic since the ICT productivity improvements are now more generalised globally than had previously been thought where it was just the US and Australia that seemed to have benefited. I think now we know there are more widespread gains, that it is a more global phenomenon, I would be cautiously optimistic that the UK could also enjoy those improvements.

  Chairman: Any final questions, colleagues? If not, can I thank you for your attendance. We note from your "Real World MPC" decisions that you are completely symmetrical in your decision making, three up and three down. We look forward to you maybe being a middle of the road member of the MPC. Can I thank you very much and wish you every success for your time at the MPC. Thank you very much.

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