Examination of Witnesses (Questions 120-139)
RT HON SIR EDWARD GEORGE, MR MERVYN KING, MR CHRISTOPHER ALLSOPP, MR CHARLES BEAN AND PROFESSOR STEPHEN NICKELL
THURSDAY 28 FEBRUARY 2002
120. Perhaps Professor Nickell could help us with this. Most independent commentators seem to have expected unemployment to rise at this point in the cycle, did you?
(Professor Nickell) Do I or did I?
121. Did you?
(Professor Nickell) Yes. I expected unemployment to rise rather slowly actually. Given the fact that the output growth in the economy is only marginally below trend, that would be consistent with a relatively slow rise in unemployment which is exactly what has happened.
122. You think it is more a question of aligning rather than anything fundamental in the data, historically?
(Professor Nickell) Sorry, I am not quite with you?
123. There is a reference in your report, for example, to the growth in the UK working population, to your assumption that it may have been faster than previously thought.
(Professor Nickell) Indeed.
124. Presumably because of net immigration over the past few years.
(Professor Nickell) Yes.
125. Is it possible that historical comparisons and the tightness of the labour market are not as valid now as they were?
(Professor Nickell) No, I do not think so. Of course one looks at all things but the unemployment statistics are a not unreasonable measure of the tightness of the labour market because they take account precisely of the fact that the population of working age may be growing at varying speeds. So if you look at employment then you may find employment growing quite rapidly because of the fact that the population of working age is growing quite rapidly. It may be misleading because you may think well employment is growing fast which means that the labour market is getting very tight. Unemployment does not suffer from that problem so the unemployment numbers I think give you a somewhat better insight than the employment numbers in this regard.
126. Do you now expect the labour market to ease over the next few months?
(Professor Nickell) I do, yes, but pretty slowly I think.
127. Is that the evidence from the Bank's agents?
(Professor Nickell) I think that would be consistent with their reports, yes. Easing but slowly.
128. Is it possible therefore that the labour market could ease without unemployment increasing significantly?
(Professor Nickell) It could ease slowly and unemployment would rise slowly. I would expect to see something in unemployment.
(Professor Nickell) Yes.
130. But not significantly?
(Professor Nickell) It depends what you mean by significantly. Of course even a small rise is significant for the people who lose their jobs. In comparison with past episodes, the rise in unemployment I expect to be relatively slight.
131. Just coming back to this net immigration point, do you think it is significant?
(Professor Nickell) Yes.
132. Do you think we are seeing a substantial effect from net immigration?
(Professor Nickell) Yes, I think it has a significant effect on the UK labour market, yes.
133. Do you think that it is economically a helpful effect? Do you think we would otherwise be suffering from greater difficulties?
(Professor Nickell) Yes. I think that is fair to say. Of course it is hard to completely separate the economic from the social. High levels in migration may have social effects, for example on London house prices but broadly speaking I think the economy benefits.
134. Governor, can I mention to you the last section and it is the introduction of euro notes and coins. Today is the last day for nine European countries that their currency is legal tender, they join the other three which phased them out before. Do you expect any problems from that?
(Sir Edward George) No.
135. None at all. How do you feel that transition has taken place?
(Sir Edward George) I think the introduction of the notes and coins has been handled extremely well. It was very carefully planned. I had no doubts in my mind that it would be handled well and it has been. It has been a very successful exercise.
136. Do you see any implications for the United Kingdom if we eventually join the euro area?
(Sir Edward George) We have been monitoring this extremely carefully and we will review the lessons that we can learn from their experience. We have had people out in Europe, the Central Banks have been very helpful to us so, yes, we will certainly learn from the experience if we get to the stage of introducing notes and coins.
137. Will you be publishing that review?
(Sir Edward George) Yes, we do. We publish a report every half year and we will be publishing one I think in May.
138. From your discussions with fellow central bankers in Europe, what implications are arising from the decision to introduce the euro and what lessons do you think even at this early stage we can learn?
(Sir Edward George) Careful preparation I think is the principal lesson. What we are talking about is a technical exercise. I do not think there are any much broader lessons that one can draw at this stage.
139. The changeover time to two months, would be a good thing, a short changeover time?
(Sir Edward George) Yes. We will look certainly at that question. It happened spontaneously and I am not surprised. Just as with decimalisation here, which was a much smaller exercise than this, of course, that happened much more quickly. It is in the hands of the education of the public in advance, the response of the public, and we will be looking at all of that. I think it would be very welcome. I think there are questions about precisely when it would most usefully be timed, whether the end year is the best time, and that is discussed between the retail sector and the banking sector in the context of the Chancellor's Standing Committee on the changeover plan.