Newspaper article The Journal (Newcastle, England)

Questions & Answers

Newspaper article The Journal (Newcastle, England)

Questions & Answers

Article excerpt

Byline: By Rebekah Ashby

By the time the Governor of the Bank of England Mervyn King travels back to London he and a delegation of 41 members of the Bank of England will have attended 23 events in the North-East. Rebekah Ashby used an exclusive one-to-one interview with the man responsible for setting interest rates to pose questions from the North-East business community about the issues that matter most to them.

Kevin Hawkins, director general of the British Retail Consortium.

Q Although the MPC has a primary duty to keep inflation between 1% and 3%, to what extent in deciding interest rate levels does the MPC take into account the real state of the economy and the general trend of consumer spending?

A We certainly take this into account, but there's always a misunderstanding about the contrast between the two.

We look at what's happening in consumer spending and output of the economy as a whole and that provides a useful guide to what is likely to happen to inflation two years down the line.

But we are also looking at import prices, what's happening to labour costs, employment and other kinds of spending.

The broad approach we adopt is to maintain a reasonable balance between demand and supply and if we do that, inflation will remain steady in the longer term.

Our aim is to meet that long-term inflation target ( we are not trying to target retail sales and consumer spending. We are going through a rebalancing of the economy in which consumer spending has been fast but it is not going to grow as fast as it has done from the late 1990s to 18 months ago.

That was never going to be sustainable.

We are now shifting away from consumer spending to more business investment and more exports, which is a sensible move in terms of the rebalancing.

We look at every element of spending in so far as we are trying to build up a picture.

I think one of the consequences of this rebalancing is it is helpful to the manufacturers and therefore helpful to the North-East.

The fact that we are moving away from consumer spending to business investment and exports will be helpful to manufacturers who depend more on these things.

George Cowcher, chief executive of the North-East Chamber of Commerce.

Q With energy prices rising so quickly, what's the likely impact on inflation? Are there any other factors pushing up inflation?

A As consumption slows, some of the impact of higher oil prices on overall demand will be mitigated as the beneficiaries of higher oil prices ( the oil-producing countries and the oil companies and their owners ( increase their spending.

And the pressure on Government finances will be eased somewhat by higher oil revenues. But it is likely that this rebalancing of the composition of demand will mean some volatility of total demand. …

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