McCafferty Will Succeed Posen on BOE Rate-Setting Committee
Ian McCafferty, chief economic adviser at the Confederation of British Industry, will join the Bank of England’s Monetary Policy Committee as the panel regains a business specialist after a year without one.
McCafferty, 56, will start at the central bank on Sept. 1, replacing Adam Posen, the U.K. Treasury in London said in a statement today. The CBI, Britain’s biggest business lobby group, hasn’t said who will take over the economics role.
McCafferty replaces one of the Bank of England’s most vocal policy makers and one who led calls for more than a year for the MPC to expand stimulus until it restarted its bond-purchase program last October. Chancellor of the Exchequer George Osborne, who appointed McCafferty, said his experience working with companies may help with some of the trials facing Britain as it struggles to shake off a recession.
“We assume he is broadly in agreement with the path that the MPC is taking, but will not be the cheerleader for it that Adam Posen was,” said Philip Rush, an economist at Nomura International Plc in London. He will become “the closest thing to an industrialist the MPC has,” he said, adding it was too early to forecast what policy stance McCafferty might take.
Posen, 45, is leaving after one three-year term as an external member of the MPC to become president of the Peter G. Peterson Institute for International Economics in Washington. The announcement in May of his departure lengthened the list of key central bank staff that Chancellor of the Exchequer George Osborne had to appoint in the next year.
In addition to Governor Mervyn King, who is retiring after the maximum two five-year terms at the end of June 2013, Deputy Governor Charles Bean’s term ends the same month. They, along with Posen, have academic backgrounds.
“I had been expecting them to try and appoint an academic on the basis that they’ve lost Posen and are set to lose Mervyn King and Charlie Bean,” said Richard Barwell, an economist at Royal Bank of Scotland Group Plc and a former Bank of England official.
The last business specialist on the MPC was Andrew Sentance, who left at the end of May 2011. McCafferty has been the CBI’s chief economic adviser since 2001. He was formerly head of macroeconomics at BP Plc (BP/) and Director of International Economics for Natwest Markets. He has a degree in economics from the University of Durham and a post-graduate diploma in European economics from the University of Amsterdam.
“His broad professional experience in business and industry, as well as his knowledge of the U.K. economy, will be extremely valuable to the committee in dealing with the challenges it faces now and in the future,” Osborne said.
As a so-called external member of the nine-person MPC, McCafferty will be one of four part-time appointees who vote on the quantitative-easing program and set interest rates. King and Bean are among the five full-time bank staff setting policy.
During his time, Posen’s pronouncements often presaged shifts in officials’ stance. He led calls to expand stimulus from September 2010 and spent the next year pushing alone to increase the size of the QE program. His colleagues joined him in voting unanimously to restart asset purchases in October as the euro-area crisis worsened and Britain’s economy slipped back into a recession.
In September, Posen proposed the creation of a new public institution that would increase credit to small- and medium- sized companies as banks continued to curtail lending after the financial crisis. The Bank of England and the Treasury last month unveiled plans for a program to increase lending.
McCafferty said in May that the CBI expected the U.K. recovery “to be on a firmer footing in the second half of the year, as inflation eases and the global economy strengthens.” He added that while inflation had been higher than expected, it should fall toward the central bank’s 2 percent target by the spring of 2013. In January last year, he said the Bank of England will probably have to raise its benchmark rate by the middle of 2011 as inflationary pressures build. The rate has been at a record low of 0.5 percent since March 2009.
“At a time when the private sector is so vital to the future of the British economy, it is good news that Ian’s excellent understanding of the economy will be available to the bank,” CBI Director-General John Cridland said in an e-mailed statement.
A panel comprising Dave Ramsden and Tom Scholar from the Treasury and Kate Barker, an external MPC member between 2001 and 2010, interviewed candidates and made recommendations to Osborne. Twenty-nine applications were received, of which seven were from women. There have been no women on the MPC since Barker left and the Treasury said it would like to see a greater number of women apply for future appointments.
There is a history of movement between the CBI and the Bank of England. Both Barker and Sentance worked at the business lobby before joining the Bank of England, while Richard Lambert became director general of the CBI after leaving the MPC.
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