Julius Sees U.K. at ‘Escape Velocity’Jennifer Ryan and Craig Stirling
Former Bank of England policy makers Deanne Julius and Charles Goodhart said the U.K. has now reached the “escape velocity” that Governor Mark Carney said economies need to achieve.
“We’re at a rate of growth that’s probably close to the trend rate,” Julius said at Fathom Consulting’s Monetary Policy Forum in London today. “We’ve done this after a long period of bouncing along the bottom. This represents escape velocity.”
Another former policy maker, John Gieve, who spoke alongside Julius and Goodhart at the event, also suggested that the economy has turned a corner after growth accelerated to 0.6 percent in the second quarter. Julius’s remarks that the economy has reached “escape velocity” echo the words that Carney used in January, before taking up the governor’s job, as the threshold for momentum that central banks should be aiming for.
“We’re doing it and we will continue to do it, subject to not getting any major shocks from abroad,” Goodhart said. “The British economy may be recovering rather faster than people expect. That’s partly because business investment, having been very low, will begin to kick in.”
The former officials spoke two days before Carney and the BOE Monetary Policy Committee unveil their monthly stimulus decision after the first round of quarterly economy forecasting at the central bank since the former Bank of Canada governor started there this month. The bank will refrain from adding to the 375 billion pounds ($574 billion) of bond purchases it has already made to aid the economy, according to all but one of 42 economists surveyed by Bloomberg News.
“I don’t think additional monetary stimulus is warranted,” Julius, who was a member of the MPC from 1997 until 2001. “The question is more how and when we’ll unwind it.”
Goodhart, who served on the MPC around the same time as Julius, said he’s a “relative optimist” on the economy’s growth potential and that “we’re more or less at the turning point.”
“Most recessions involve a period of above-trend growth, and there’s a reasonable probability we see that now,” said Gieve, a former BOE deputy governor. “I think we’re quite some way from materially changing monetary policy.”
The discussion also focused on likely measures by the Bank of England to guide investors on the future path of interest rates. Gieve said Carney will opt for a form of communication that will hook the bank’s monetary-policy stance to some type of economic data.
“My own bet is Carney will go for something on conditions, and there he’ll have to avoid something that’s revised massively and that he can hit quickly,” Gieve said. “He’ll go for either unemployment or possibly real incomes, but probably unemployment.”
Goodhart said such forward guidance will be difficult for the nine-member committee to adapt to.
“I don’t think it matters very much for the British economy, but it matters very much for the MPC, because it will constrain the MPC’s own procedures,” he said. “If you’re independent, how can you commit yourself to an interest-rate path? And how can you commit your successor?”