Examination of Witness (Questions 40 -
WEDNESDAY 25 SEPTEMBER 2002
40. We issued a report on accounting, just before
the Parliament broke for summer recess.
(Sir Andrew Large) I regret I have not.
I look forward to doing so.
41. Can you put it on your bedside table?
(Sir Andrew Large) I will.
42. I would recommend Professor Sir David Tweedie's
comments to us on that. (Sir Andrew Large) Absolutely.
I have a very high opinion of him.
43. Sir Andrew, you tell us in your questionnaire
that you have "an understanding of financial trends and factors
giving rise to them", which is good news. Can you tell us
specifically what your particular expertise is in monetary policy? (Sir
Andrew Large) As you know from my CV, I am not a professional
economist in monetary affairs. On the other hand, in the various
things that I have done over the last 20 to 30 years I have needed
to be mindful, both of monetary policy itself and some of the
consequences of it. So as an observer of thatas a participant,
perhaps, I should say, rather than observerin the financial
world I hope thatand I hope that you will feelI
have developed an understanding for many of the areas that come
under the remit of the Monetary Policy Committee.
44. As a close observer of all this, as Deputy
Chairman of Barclays and a participant, I think you said, what
was the last decision of the MPC that you disagreed with? (Sir
Andrew Large) If your question is addressed as "have
I been an observer of the minutes of the MPC every time they have
come out" the answer is no, not other than in a very general
area, so I am not sure that I can answer your question.
45. You said later on, in answer to our question
7, that "in a pragmatic sense and as an observer the inflation
target of the MPC seems to be working satisfactorily". Is
there no decision of the MPC in the last five years you have disagreed
with? (Sir Andrew Large) I cannot recall one, no.
46. You think they have got it right every time? (Sir
Andrew Large) Well, it is easy to be wise in hindsight.
47. You would not like to be wise in hindsight?
What do you think the neutral rate of interest rates is in the
United Kingdom? (Sir Andrew Large) I think that the
concept of a neutral rate is one which is argued about by economists
who have differing points of view. I do not know that one can
necessarily put a number on it. One hears different numbers being
put on by different people. I want to be much more involved in
the discussions with all the information at my disposal before
trying to come to a view on that.
48. You have been a very senior banker. In the
last confirmation hearing Mr Tucker, who is on the MPC, put it
at around 5-5.5 per cent; Professor Nickell, who has been on the
MPC for a long time, put it at around 5.5. You must have some
idea on this. (Sir Andrew Large) To tell you the truth
I do not know whether those numbers are right or not. I could
pluck a number out of the air for you, but I do not think I can.
49. In your response to us, in reply to question
five where we are asking you about the MPC process, you conclude
by saying "the MPC process seems to be held in good regard."
What, in your view, are the features of our process that cause
it to be held in good regard? (Sir Andrew Large) I
think the fact that the process is transparent, the fact that
there has been a target set down as an indicator, if you like,
of stability, and that that target has broadly been met. I think
those are several contributory factors.
50. Is there anything about the target in particular
which you think has merit? (Sir Andrew Large) What,
the 2.5 per cent?
51. Any other feature of the way the target
is operated. (Sir Andrew Large) As I understand it,
the target is set each year by the Chancellorthe 2.5 per
cent figure is set by the Chancellor each year. Of course, he
would be free to change that if he deemed it necessary, but that
is the target figure that has been used.
52. There is a little bit more to it than just
the target: there is the point about fluctuation by one percentage
point above and below requiring the Bank and MPC members to write
letters. (Sir Andrew Large) Yes, and that, as I understand
it, has not happened.
53. So is that a good feature of it? (Sir
Andrew Large) What, that it has not happened?
54. That the target is symmetrical. (Sir
Andrew Large) I see. I think it is important that it is symmetrical,
yes, certainlyextremely important.
55. So you would be somewhat critical of central
bank systems which lack transparency and do not have symmetrical
inflation targets? They are not as good as our system? (Sir
Andrew Large) There are different circumstances, no doubt,
in different countries, but I think as a matter of principle both
the transparency and the symmetrical nature of it is very valuable.
56. Would you say our model of doing it is superior
to that of the European Central Bank? (Sir Andrew Large)
They have come up with a different approach.
57. I know that, but do you think ours is superior? (Sir
Andrew Large) Our system differs from theirs. All I am trying
to say is that I think ours is satisfactory. It has worked well.
That is what I put in my questionnaire.
58. Can you not make a comparative judgment
between their system and our system and say which, in your view,
is better? (Sir Andrew Large) Not, I think, until I
have looked in much greater detail at the precise way in which
they do it. I am afraid I do not have the detail of it at my fingertips.
It is something I will certainly look at, and if you would like
to speak further about it I would be delighted to, when I am better
59. Are you telling us you do not know the system
that the ECB works on? (Sir Andrew Large) Not in detail,