New BoE boss Bailey does not back immediate virus rate cut
The Bank of England should wait until it has more clarity about the economic hit from the coronavirus outbreak before making any decision to cut interest rates, its next governor Andrew Bailey said on Wednesday.
But Bailey said quick help was needed for companies whose operations have been disrupted by the disease’s spread around the world.
Investors have ramped up bets that the BoE will follow the lead of the U.S. Federal Reserve and the Bank of Canada and cut rates, possibly before its first scheduled policy announcement under Bailey on March 26.
While Bailey said the impact of coronavirus would be his top priority, he suggested a BoE move was not imminent.
“I think what we need frankly is more evidence than we have at the moment, as to exactly how this is feeding through,” Bailey told parliament’s Treasury Committee when asked if he favored a rate cut before March 26.
Bailey, who heads the Financial Conduct Authority (FCA) and is due to replace incumbent governor Mark Carney on March 16, said British authorities would need to employ other tools to help the economy through disruption of damaged supply chains.
“I am not in any sense reducing the importance of monetary policy, (but) all the focus is on monetary policy,” he said.
“I think it is quite reasonable to expect we are going to have to provide … some form of supply chain finance in the not very distant future now to ensure that the effects of this shock from the virus are not damaging to many forms of activity.”
Finance minister Rishi Sunak is expected to announce help for businesses in a budget statement on March 11.
The disruption from coronavirus has started to affect Britain’s economy. A survey this week showed a record increase in a measure of delivery times for manufacturers. [GB/PMIM]
Bailey said smaller companies in particular would need financial support. “We are going to have to move very quickly to do that,” he said.
On monetary policy, Bailey echoed views expressed by top BoE officials, saying the central bank’s benchmark rate could be lowered to about 0.1% from 0.75% now.
He added that the BoE’s total firepower including asset buys was “uncomfortably close” to the average size of rate cutting cycles deployed in past downturns.
Bailey, a former BoE deputy governor with 30 years’ experience at the central bank, has been criticized in his current job at the FCA for being too lenient on financial firms that engaged in misconduct.
He faced question after question – some of them pointed – about his record at the FCA from lawmakers on Wednesday.
“I am proud of what we have achieved. I am not proud of some of the things that have happened during my time,” Bailey replied, saying the FCA’s powers were restricted by law.
When asked by the Treasury Committee’s chair Mel Stride if he was nimble enough to head a major central bank, Bailey recalled how he helped prevent a collapse of Britain’s banking system over a decade ago when he was a senior BoE official.
“We had to do things in short order during that period which were pretty unprecedented, absolutely unprecedented in the history of certainly the bank, and we had to do them at short notice,” Bailey said.
Another lawmaker questioned if he would really “speak truth to power” and uphold the BoE’s independence from the government.
“Yes,” replied Bailey.
Not all the audience at what was an unusually packed committee hearing were convinced by Bailey’s record.
Gina Miller, an investor known as an anti-Brexit campaigner but also a critic of Bailey’s handling of financial scandals, said he had failed to take responsibility for FCA mistakes.
“He is saying that it is not his leadership but the systematic failure of the institution, which is quite extraordinary. All the time he has been there, why did he not flag it with parliamentarians?”