Jonathan Haskel of Monetary Policy Committee visits firms in region

For some years now The Northern Echo has been a partner in the work of the shadow Monetary Policy Committee, carrying the results of meetings between North East business leaders letting the Bank of England know what it should do with interest rates – Raise, Lower or Hold.

We provide the volume for their voices, which are skilled and educated in such matters, but don’t mind telling Andrew Bailey that sometimes he’s got his sums wrong.

So getting the rare chance to talk to an actual MPC member was a mix of eagerness and trepidation. Had Jonathan Haskel read the shadow MPC reports? Did he think he was in enemy territory? Far from it.

The MPC is made up of nine members – the Governor, the three Deputy Governors for Monetary Policy, Financial Stability and Markets and Banking, a Chief Economist and four external members appointed directly by the Chancellor, of whom Jonathan is one.

External members like him are appointed to make sure that the MPC benefits from thinking and expertise from outside of the Bank of England. A representative from HM Treasury also sits with the MPC at its meetings to make sure that the MPC is fully briefed on fiscal policy developments and other aspects of the Government’s economic policies, and that the Chancellor is kept fully informed about monetary policy.

Jonathan’s “thinking and expertise from outside of the bank” is impressive, putting him among the brightest financial minds in the country.

He is Professor of Economics at Imperial College Business School, Imperial College London, having obtained his BSc at University of Bristol and PhD at the London School of Economics.

Jonathan Haskel talks with North East business leaders (Image: Bank of England)

He was previously Professor and Head of Department at the Department of Economics at Queen Mary, University of London. He has taught at the University of Bristol and London Business School and been a visiting professor at the Tuck School of Business, Dartmouth College, USA; Stern School of Business, New York University, USA; and visiting researcher at the Australian National University.

I could continue cutting and pasting from his Bank of England biography, but you get the point. I think he may have pound signs, graphs and percentages continually whirling around him awake or asleep, but has the ability to assemble them in perfect order to answer a problem when it arises.

He liked the idea of the shadow MPC because it very much supported the reason he was in the region at the time – as part of the Bank’s mission to base at least part of its policy around grassroots needs, so as a policymaker he was in Newcastle and Durham to hear the economic, employment and cost of living concerns faced by people and businesses.

He told me: “Every MPC member goes around the country to visit agents in each region. During Covid that had to be done differently, which was a shame, but it has restarted now and each region has its own idiosyncrasies that we need to know about.

“Part of that is to get to know about particular circumstances in particular regions but the general thrust of it is to get an impression from the agents about the facts on the ground, and I think that takes one to at least a couple of places.

“One is you’ll know that in our monetary policy report document we always have boxes and graphs and experts and all that kind of thing with reports from the agents – this time, for instance, that included a particularly interesting one on artificial intelligence.

“Then the second thing which has slightly faded from view, is that, especially during Covid when goodness knows what was going on in the economy and particular sectors were badly affected, the agents were incredibly useful to us to fully understand what was happening. They could go and talk to the transportation sector and find out what were the difficulties around transportation and generally getting stuff where it needs to be.

“Here in Newcastle for instance, we just had a discussion about shipping around the Middle East and how people were coping with that.”

There is an easy way to do this sort of groundwork, but Jonathan and his MPC colleagues choose the more challenging route, so instead of just listening and summarising, they get to know the issues and report back with insight into how a certain shift in thinking or strategy could make a big difference.

They have a goal – of course – but hitting two per cent inflation still leaves room for a degree of flexibility and redirection.

“I’m going to be a bit negative and a bit positive with that situation,” he tells me.

“So the negative bit of it is that our remit, as you know, is two per cent inflation for the whole country. And so if somebody says region X is particularly suffering or doing particularly well or whatever, we can hear that, but it’s not our remit – that’s the negative side. The positive side is the ability that we have to get a lot of texture about what’s really going on in a number of areas which are bellwether leading indicators.“For example, a couple of the largest housing development companies are based in the North East – that is a real bellwether, which we’re looking at very closely and hearing from ground level, that is very helpful and terrific regional information helping us make an overall forecast.”

Jonathan Haskel visits businesses in the North East (Image: Bank of England)

When you live and work in a region like the North East, your enthusiasm for it can easily be biased, so who better to ask about how we are really doing than the chap from the Bank of England? Not only is Jonathan in a position to influence our economy but the roadtrips give him useable insight that could make all the difference.

Asked to mark regional performance, growth and potential, he gives the North East an uplifting eight out of ten.

“Us economists as you know Mike, are trained relentlessly to think about what’s the alternative. To me, the question is, my goodness me, we’ve been hit in the last few years by every shock you could possibly throw at us – the economy, Brexit, war, disturbances in the Middle East, shipping and all that kind of thing.

“So relative to how it could have been I’ll give an eight.

“That said, we have just had a terrific round table session with about 70 or 80 businesses and the variety of stories you hear is very striking. I don’t think there’s much question that on the residential housing side of things there is pretty low activity there because house building has been going down very sharply and the associated companies who are involved with that are finding things quite hard, like accountancy firms, surveyors and so forth.”

Stats in the meeting he had just held showed that in regard to residential housing investment, around 40 per cent of it is new builds, another 40 per cent of it is repair and maintenance and 20 per cent is business services and transactions costs associated with all of that activity and a lot of that 20 per cent is associated with the new build because of the contracting aspect.

Businesses are having to pivot like Ross to get themselves back on track and reinvent themselves, and Jonathan saw evidence of that at Eldon Square, which will need to react to a changing audience.

“I found it really interesting how entrepreneurial they are being about repurposing a lot of their retail space and having a different offering that would be in tune with the computer generation and appeal to the football fans, with 60,000 people just across the way.

“What’s impressive is the ability of people to turn on a sixpence and try to match a different generation of shoppers and a different type of experience.”

I was engrossed in the conversation and Jonathan’s own skill in pivoting to match the audience in front of him. But I soon went too far, became wildly over-confident and suggested that economic models might have had their day because they were becoming too difficult to pin down.

It went silent for a moment, and I thought I might actually have heard a gasp in the background.

After a moment, Jonathan found the right words to restart the conversation: “Criticising an economist’s model, Mike, is like telling a hairdresser their hair isn’t very good. Or something like that, I can’t think of the right analogy so I’ll push back against it in the following way.

“One thing I’ve always thought about economic modelling, a thing which I think is a bit neglected, is that half of economic modelling is basically just arithmetic. A lot of arithmetic in economic modelling is just the adding up of balance sheets and making sure that liabilities are balanced by the assets. In economic models, it’s the adding up of the national accounts, so making sure that we correctly add this stuff up.

“Inflation, of course, is a basket, so there’s lots and lots of different goods like concert tickets on the one side, rents on the other side, electricity bills on the other side.

“They’ve all got to add up, so I would go to the stake on that part of the economic models which correctly say that if we’re going to forecast gas prices, concert ticket prices and second-hand car prices, we better make sure that we add all of that up in a consistent kind of way.

Jonathan Haskel talks to local businesses (Image: Bank of England)

“That’s why I push back, but where I agree with you is that the other half of the economic models is the vaguer side of it that reflects how people’s expectations and attitudes change and people are working from home. All of that is much harder to model, but I suppose where I would go on that is in periods where the economy is relatively stable and there aren’t quite so many shocks, those behavioural assumptions and those behavioural traits I think are quite safe.

“So economic models do quite a good job around there. But they are in much more difficulty when we have these kind of extraordinary changes that we see. But businesses still have to be able to make long term decisions.

“I guess where that takes us is around the challenges of AI and we were talking about that a little bit around the table and there’s some terrifically interesting people around services and accountancy firms for example, who are trying to implement AI. Nobody quite knows what the shape of accounting and auditing is going to look like, but if we can harness these AI machines to better pull down information and do some kind of more routine tasks we can at least take a bet on that – but ultimately, it is a bet.

 “I’ve been doing this job for five years and when I first started we had had the Brexit referendum in 2016. But we had that period of uncertainty about what our post Brexit trade relations would be, as many businesses will remember. That was a year and a half where firms had no idea what type of deal we would strike with the EU.

“Where I’m getting to on this is I’ve got a very strong impression that the large firms were just as uncertain as the small firms, but of course the large firms had the bandwidth and the ability to cope with all of this. And I think a lot of the small firms just didn’t have that bandwidth and so there was a very strong cleavage between the large and small firms.

“Now, I’m not seeing that at the moment. There is lots of uncertainty and lots of difficulties, but that big kind of existential change – I don’t see the firms talking about that.

“There’s a little bit of discussion that the environmental regulations are a bit complicated and we’re not quite sure what we’re going to do, but there’s certainly much less of that.

“If we are in a world where we’ve got a lot more AI, what do big firms and small firms start to look like? Are we in a position where, for example, accountancy firms or maybe small High Street firms just might go out of business – it just might be too difficult for them to implement a complicated series of AI packages, maybe that’s just one of the things that big competing firms can do.”

Who is the Bank of England’s man in the North East?

The Bank’s agents operate from 12 agencies across the UK. Up to four agents are based at each agency, supported by small administrative teams.

Agents have one-to-one confidential conversations with businesses and community organisations in their area. They hold local events so people can share views and experiences and they meet hundreds of contacts, from small businesses and community organisations to large global companies to find out what conditions are like for businesses and communities.

 Mauricio Armellini (Image: Bank of England)

In our region the main man is Mauricio Armellini. He has been a member of the Government Economic Service since 2008, when he joined the Department for Work and Pensions to lead teams of analysts in areas of key Ministerial attention such as skills and pensions.

In 2013 he went on secondment to the North East Local Enterprise Partnership, where he worked as Chief Economist until his appointment as Bank of England’s Agent for the North East in September 2014.

Mauricio came to the North East in 2005 to undertake his PhD studies in economics at Durham University, following his MA in Development Economics at Williams College (USA). He also taught economics at undergraduate and postgraduate level at Durham University.

Before leaving his native Uruguay in 2004, he worked as a professional economist in the financial and non-for-profit sectors.

His deputy is Gareth Harrison, whose job is to feeds intelligence back to Bank policymakers who use it to inform policy decisions like the Bank Rate.

Gareth previously worked for the manufacturing trade body EEF and as a recruitment specialist. He has a degree in Business and Economics and a Postgraduate Diploma in Human Resources Management.