When Martin Weale speaks, I listen

Jun 10, 2014   //   by Keith McDonald   //   Commentary / Editorial  //  Comments Off on When Martin Weale speaks, I listen

Bank Of England

A mere 12 years ago, I embarked on a sixth-form economics tour of the city of London, which included many major institutions, from Goldman Sachs to the Bank of England. But there was one trip that sticks out above all others, and it has a certain resonance at the moment.

In the heady pre-recession days, there was an almost fearless confidence in 2002, which was reflected almost universally in the city. Even as a fledgling teenager, it wasn’t difficult to sense the hubris; the whole financial sector was swimming in it.

Consequently, a week of trips to see economists, researchers, traders and fellows, produced a disappointingly bland range of responses.

What was abundantly clear was that banks pursued a higher risk mentality – perhaps with some justification in the early 2000s. The presiding ideology was that it was better to push for higher growth, even if that meant higher inflation. Yes, it was less prescient for stability, but the rewards were worth it.

Perhaps it’s little wonder that we’re now watched over by the Prudential Regulation Authority (PRA). This new body, run by the Bank of England, was devised as part of the latest regulatory shake-up to prevent firms from upsetting financial stability.

Then something changed.

Martin WealeAmong the final visits was a trip to the National Institute of Social and Economic Research to see then-Director, Martin Weale CBE (pictured). His attitude was markedly different.

Keep control of inflation and improve productivity, he said. That’s the root to improved and sustainable growth without pushing too many macro triggers.

Weale oozes knowledge, precision, and judgement. When he speaks, you listen.

And the country heard later in 2002, when he accosted Gordon Brown for fiddling the terms of his infamous Golden Rule on borrowing. “One can already smell the fudge being cooked in Great George Street”, he remarked memorably.

One can already smell the fudge being cooked in Great George Street.

Dr. Martin Weale on Gordon Brown (2002)

It came as little surprise that he became an external member of the Bank of England’s Monetary Policy Committee in 2010. And it’s of little surprise that, as one of the more cautious (or ‘hawkish’) members of the MPC, he’s one of the few to have spoken out recently about the need to interest raise rates sooner rather than later.

And it makes sense. Growth is pushing forecast, business confidence is rising, Sterling is looking stronger, and – most pressingly – the Bank of England is keen to keep things very steady.

While it accepts that it will have to rock the boat for homeowners, it wants a series of gradual small rate increases to avoid them capsizing completely. Weale believes that if it this is the case, it needs to be starting pretty soon.

Plenty of homeowners have insured themselves against rate hikes by opting for fixed-rate mortgage deals over the past twelve months. Isn’t it as good a time as ever to get started?

Dr. Weale has spoken, and, once again, I’m listening.

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