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Bank of England November 2012 Inflation Report

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Bank of England November 2012 Inflation Report House of Commons Treasury Committee Bank of England November 2012 Inflation Report Oral and written evidence Tuesday 27 November 2012 Sir Mervyn King, Governor, Paul Fisher, Executive Director, Markets, Dr Martin Weale CBE and Dr Ben Broadbent, External Members of the Monetary Policy Committee, Bank of England Ordered by the House of Commons to be printed 27 November 2012 HC 767 Published on 10 January 2013 by authority of the House of Commons London: The Stationery Office Limited £7.50 The Treasury Committee The Treasury Committee is appointed by the House of Commons to examine the expenditure, administration, and policy of HM Treasury, HM Revenue and Customs and associated public bodies. Current membership Mr Andrew Tyrie MP (Conservative, Chichester) (Chairman) Mark Garnier MP (Conservative, Wyre Forest) Stewart Hosie MP (Scottish National Party, Dundee East) Andrea Leadsom MP (Conservative, South Northamptonshire) Mr Andy Love MP (Labour, Edmonton) John Mann MP (Labour, Bassetlaw) Rt Hon Pat McFadden MP (Labour, Wolverhampton South West) Mr George Mudie MP (Labour, Leeds East) Mr Brooks Newmark MP (Conservative, Braintree) Jesse Norman MP (Conservative, Hereford and South Herefordshire) Teresa Pearce MP (Labour, Erith and Thamesmead) David Ruffley MP, (Conservative, Bury St Edmunds) John Thurso MP (Liberal Democrat, Caithness, Sutherland, and Easter Ross) Powers The Committee is one of the departmental select committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No 152. These are available on the Internet via www.parliament.uk. Publication The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the Internet at www.parliament.uk/treascom. The Reports of the Committee, the formal minutes relating to that report, oral evidence taken and some or all written evidence are available in printed volume(s). Additional written evidence may be published on the internet only. Committee staff The current staff of the Committee are Chris Stanton (Clerk), Lydia Menzies (Second Clerk), Jay Sheth and Adam Wales (Senior Economists), Matthew Manning (on secondment from the FSA) and Duncan Richmond (on secondment from the NAO) (Committee Specialists), Steven Price (Senior Committee Assistant), Jo Cunningham and Lisa Stead (Committee Assistants) and James Abbott (Media Officer). Contacts All correspondence should be addressed to the Clerk of the Treasury Committee, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is 020 7219 5769; the Committee’s email address is [email protected] List of witnesses Tuesday 27 November 2012 Page Sir Mervyn King, Governor, Paul Fisher, Executive Director, Markets, Dr Martin Weale CBE and Dr Ben Broadbent, External Members of the Monetary Policy Committee, Bank of England Ev 1 List of written evidence 1 Report to the Treasury Committee from Sir Mervyn King, Governor of the Bank of England Ev 18 2 Report to the Treasury Committee by Paul Fisher, Executive Director for Markets, Bank of England Ev 19 3 Report to the Treasury Committee by Dr Martin Weale CBE, External Member of the Monetary Policy Committee, Bank of England Ev 20 cobber Pack: U PL: COE1 [SO] Processed: [09-01-2013 11:41] Job: 026006 Unit: PG01 Source: /MILES/PKU/INPUT/026006/026006_o001_db_TC 27.11.12corrected.xml Treasury Committee: Evidence Ev 1 Oral evidence Taken before the Treasury Committee on Tuesday 27 November 2012 Members present: Mr Andrew Tyrie (Chair) Mark Garnier Mr Brooks Newmark Andrea Leadsom Jesse Norman Mr Andy Love Mr David Ruffley Mr Pat McFadden John Thurso Mr George Mudie ________________ Examination of Witnesses Witnesses: Sir Mervyn King, Governor of the Bank of England, Paul Fisher, Executive Director, Markets, Bank of England, Dr Martin Weale CBE, External Member of the Monetary Policy Committee, and Dr Ben Broadbent, External Member of the Monetary Policy Committee, gave evidence. Q1 Chair: Good morning, Governor. Q3 Chair: One of the important aspects of having a Sir Mervyn King: Good morning, Chairman. Governor with the self-confidence to speak their mind, Chair: It is not very long since we last met, although as certainly you have done before this Committee, is in another capacity when you were before the that it can bolster the credibility of policy, and Banking Commission. particularly monetary policy. You had a big hand in Sir Mervyn King: Indeed. the creation of the inflation report, which is what we Chair: I said, “You have about seven or eight months are discussing today. It is with that scrutiny and to go”. As I recall, you replied, “Seven months and transparency role in mind that we will be holding that eight days”. pre-appointment session with your successor. Could I turn to the inflation report, and take you to Sir Mervyn King: Exactly, and today it is seven page 40, where there are these charts that show your months and three days, because that was merely five view about both the degree of uncertainty in the days ago. forecast and also your view of the likely prospects? What I note from this chart—and I think you noted it Q2 Chair: We note that. Of course, there has been too in response to a question from Stephanie a development— Flanders—is that the most likely outcomes have Sir Mervyn King: There has. shifted to the left, that is have become more Chair:—in your part of the economic bailiwick in the pessimistic, and that the main reason for this is that last 24 hours, and it is a very important event—not you think the chances of a rapid recovery have more only for the British economy, it is also an important or less been taken off the table. They have diminished event for Parliament—because we are, as you know, sharply compared to your view three months ago. going to be playing a role in the scrutiny of that Why is this, Governor? appointment, as the Chancellor announced on the Sir Mervyn King: Let me first say that I am grateful Floor of the House yesterday. Before we get into the to you for drawing attention to the inflation report. hearing on the inflation report, I wondered whether This is the 80th such report in 24 years, and I think it you had anything you wanted to say about that has served its purpose very well. I am also grateful to appointment. you for focusing on these charts rather than on the Sir Mervyn King: I think anyone who holds down a central projection, because I think the essence of policy making is looking at the balance of risks, and job like mine wants very much on the day when they as you say, we have significantly lowered, in our view, leave to hand the Bank on to someone whom they the chances of growth being rapid. This is something know will carry on the good work. I am completely that I think has been building up in our minds over confident that with Mark Carney you have someone the past year. It is not a sudden change between with whom the Bank is in very good hands, as indeed August and November. Although we only made the is the role of Governor, which I am sure he will carry change in these charts in November, I think it was a out with very great distinction. I think the only other result of finally realising that, as we had debated thing I would say is that the United Kingdom should among ourselves the prospects for growth and the take pride not only in the fact that we are willing to chances of a very rapid expansion of growth—which search the world for the best candidate, as the you might have expected if this had been a normal Chancellor said yesterday, but also the fact that we cyclical downturn and then recovery—we do not think have produced a very strong shortlist. I think more that the chances of very rapid growth in 2013 and than any other country in recent years, we had a truly 2014 are very great. So we made what we thought outstanding shortlist from which the Chancellor could was a realistic change to our judgment about where select, and he selected an outstanding candidate. the balance of risks lies. cobber Pack: U PL: COE1 [E] Processed: [09-01-2013 11:41] Job: 026006 Unit: PG01 Source: /MILES/PKU/INPUT/026006/026006_o001_db_TC 27.11.12corrected.xml Ev 2 Treasury Committee: Evidence 27 November 2012 Sir Mervyn King, Paul Fisher, Dr Martin Weale CBE and Dr Ben Broadbent Q4 Chair: But my question to you is, what has see exactly where this decline in the world economic changed over the last three months that has resulted environment is coming from. in such a sharp shift? If you had been thinking about Sir Mervyn King: Through the year, I do think that this earlier, much earlier, it should presumably have the concerns in the euro area have grown, because the already started to appear. underlying problems have not changed at all, but the Sir Mervyn King: Yes, and I think we should have longer the problem goes on, the bigger the adjustment done it earlier and we did not. I think there are times that will ultimately be needed. The scale of the debts when you debate something and then you finally that are building up is growing and at some point that decide, “Look, our judgment really has to change will have to be dealt with. I am less optimistic about now” and we wanted to make clear that we did not the position in the emerging markets as a whole.
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