Examination of Witness (Questions 40 -
WEDNESDAY 22 MAY 2002
(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.
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
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.