In an uncertain world, Bank of England ‘agents’ keep Carney informed
Unsure how a misfiring global economy is affecting matters at home, Bank of England chief Mark Carney has turned to an age-old gauge of Britain’s economy: the word on the street from a trusted band of regional agents.
Dating back almost two centuries, the agents – drawn from lifelong BoE staffers and economists with local expertise – add boots-on-the-ground flavor to the reams of statistics ingested every month by Carney and the eight other professional economists on the Bank’s interest-rate setting committee.
The team of around 30 agents, predominantly male, help the top brass to venture far from the elegant parlors of the Bank’s 18th Century Threadneedle Street headquarters for fact-finding trips on everything from wages to credit and real estate.
“You get all that sort of background that certainly doesn’t come from reading statistics,” Martin Weale, an external member of the Monetary Policy Committee, told Reuters on a recent visit with deputy agent Andrew Holder to a construction firm in Reigate, a town in south-east England.
Over cups of coffee in a boardroom, Weale and Holder, an agent since 2008 who used to write parts of the Bank’s quarterly economic outlook, quizzed the firm’s company secretary about his business plans and the outlook for construction, with the gentle air of counselors talking to a patient.
Carney, governor since July 2013, has taken trips with agents to a giant Jaguar Land Rover factory, a potato processing plant and a construction digger hire company in recent months.
Modest trips, however, can yield the biggest nuggets.
Weale, a former University of Cambridge lecturer, recalled a visit with an agent to the Western Isles of northern Scotland in the midst of the euro zone debt crisis.
“I didn’t realize that the Western Isles are a big shellfish exporter to Spain. This was at the time of the euro crisis and people were talking about difficulties in getting paid from Spain and worrying about whether it was sensible to send these consignments,” he said.
Only later did official data show that euro zone imports of British goods contracted in mid-2012 for the first time since the global financial crisis, and the value of British exports to Spain slumped to a 10-year low.
‘MISSION WAGE GROWTH’
Cast as its “eyes, ears and voice”, the bank’s network of agents dates to an earlier age of panic in the markets.
Britain in 1826 was grappling with a banking system that had operated without the “due attention … necessary for the safety of all banking establishments,” in the words of then-Prime Minister Lord Liverpool.
After a wave of bank collapses across England and Wales, the Bank was forced to open regional branches led by agents who were respected independent local businessmen.
They were later replaced by employees of the Bank and operate like both ambassadors and intelligence agents: Their biographies are public but not all their despatches are published in full.
“In Manchester you could say we’ve had an agent longer than we’ve had a member of parliament,” joked Graeme Chaplin, a Bank agent who worked in Manchester and now the West Midlands.
With sagging wage growth at the top of the interest-rate setting committee’s radar, the agents have been tasked with collecting first-hand information on pay from businesses.
“We’ve started to hear from businesses that low inflation is starting to affect some businesses’ pay. That’s a real amber warning light for us, a really important message,” Gareth Ramsay, the Bank’s director of monetary analysis, said.
“We really want to be well-sighted on that area and there’s no official data source that’s going to tell you that.”
The Bank’s agents first reported that low inflation might be dampening pay growth in companies in October. A month later, the Monetary Policy Committee started to cite this as one reason why they were cautious about the outlook for interest rates.
“GETTING AN EARFUL”
There are pitfalls when digesting the dispatches of their regional envoys: Weale said there is “very strong” temptation for the Bank’s bosses to see regional visits through the prism of their own beliefs about the economic outlook.
Andrew Sentance, senior economic adviser to PwC and a Monetary Policy Committee (MPC) member from 2006 to 2011, agreed not all the evidence collected by agents seems to get the airing it deserves.
“When I look at some of the responses of the (agents’) surveys – for instance on skill shortages at the moment – they don’t seem to filter through to the MPC in their discussions,” Sentance said.
But the Bank’s reliance on its agents has increased under Carney who at the Bank of Canada had a similar network.
“I don’t want to come across as complacent – I’ll probably go to my next meeting and get an earful! And that’s the point, I’m here to know what we should be hearing about,” Chaplin said.
When he became an agent in 2001, Chaplin sometimes bore the brunt of a view that the Bank of England was more concerned about “house prices in the south east of England rather than manufacturing in the north of England”.
SEARCHING FOR BUBBLES
More recently, small businesses have expressed frustration about access to credit – something that has only really started to improve over the last year or so.
“I didn’t often get people shouting at me and telling me I personally should be doing something about this. They were just very, very annoyed and wanted me to know,” he said.
Before the 2008-09 financial crisis, Chaplin’s meetings with businesses focused on the economy and monetary policy.
Now the agents are being used to gather intelligence about Britain’s financial system, feeding into a monthly internal document for policymakers called the Financial Stability Update.
“The FPC is particularly interested in what’s going on in commercial real estate, buy-to-let lending, and credit conditions more generally,” said Gareth Ramsay, the agents’ ultimate boss. That’s something the agents are well-placed for.”
Chaplin was hesitant to predict what the years ahead will bring for the agents but reckons the agents will be around for a while yet: “The fourth industrial revolution I don’t think will make me obsolete,” he said.