Why Minouche Shafik would be a bad choice as Bank of England Governor

The appointment of the next Governor of the Bank of England has become quite a merry-go-round. It reminds me rather of the Grand National at Aintree where we see many horses take the lead in the race but very few survive. This morning’s suggestion was even by these standards something of a surprise so let me hand you over to Simon Jack of the BBC.

NEW: told that Minouche Shafik is THIS govt’s preferred candidate for next Bank of England Governor. No announcement this side of election – cos it would be “politically messy” but if (a big if) this government secures majority – Egyptian born Minouche is current favourite.

For newer readers the surprise element comes from her past track record on the Monetary Policy Committee but two other issues are raised so let me address them. The first I have done so already on Twitter.

Just so I am not misunderstood having a woman as Bank of England Governor is a good idea but sticking to past policymakers the competent and intelligent Kristin Forbes would be much better than the incompetent Shafik,

Next is the issue of her nationality as the Bank of England has developed a habit of only employing women from abroad for such roles. This is an issue I raised when she was first appointed to the MPC as I found myself being criticised by @ToryTreasury which described her as British. They went rather quiet though when I quoted her describing herself as Egyptian and asked if they thought she knew better than they did? But both Kristin Forbes and the present Silvano Tenreryo were and are from abroad. I have no issue with appointing some from abroad but the occasional British woman would not go amiss! Also should they appoint a British woman perhaps they could look a little wider than they did last time. From Wiki.

The Hon Charlotte Hogg was born on 26 August 1970 in London, England. Both her parents hold peerages in their own right: her father is the 3rd Viscount Hailsham, a former Member of Parliament and hereditary peer as well as being a life peer, and her mother is the Baroness Hogg, a life peer . She was brought up on the family estate of Kettlethorpe Hall in Kettlethorpe, Lincolnshire.

Monetary Policy

If we step back in time to the 28th of September 2016 Minouche Shafik gave a speech at Bloomberg.

the process of adjustment can sometimes be painful. That’s where monetary policy can help, and it seems likely to me that further monetary stimulus will be required at some point in order to help ensure that a slowdown in economic activity doesn’t turn into something more pernicious.

As I pointed out the next day this was a case of toeing the Governor Carney line. As I  had pointed out 2 weekend’s  before on BBC Radio 4’s Money Box the simple fact was that the fall in the UK Pound £ was a much bigger factor for the UK economy than the Bank of England moves. As of the latest update on our effective or trade weighted exchange rate back then we had received the equivalent of a 2.5% cut in Bank Rate or as I put it on the radio a “Bazooka” compared to the “peashooter” she and her colleagues deployed with a 0.25% cut. The £60 billion of QE was pretty much been offset by a rise in pension fund deficits and the Corporate Bond QE seems to be as much for foreign firms as UK ones.

She in fact highlighted the problem herself but rather oddly chose to ignore it with her policy prescription above.

For example, Bank staff have revised up their forecast for the mature estimate of GDP growth in Q3 to 0.3% from 0.1% at the time of the August Inflation Report.

So thing’s are better but the prescription is the same! Even worse she was unable to grasp that the situation she described was ( and still is ) part of the problem.

What is unusual about this particular loosening relative to previous cycles is its starting point. Despite many real economic variables having returned to around normal levels following the financial crisis the absence of any signs of overheating or inflationary pressure meant that at the time of the referendum Bank Rate was already at an all-time low of 0.5% and we held a stock of £375bn gilts on our balance sheet.

As to “any signs of overheating” she missed this as I pointed out.

UK broad money, M4ex, is defined as M4 excluding intermediate other financial corporations (OFCs)……The three-month annualised and twelve-month growth rates were 10.9% and 7.3% respectively.

Oh and something else was red-lining too.

Consumer credit increased by £1.6 billion in August, broadly in line with the average over the previous six months. The three-month annualised and twelve-month growth rates were 10.4% and 10.3% respectively.

In fact in spite of the fact that the estimates for GDP growth had been revised up Minouche could nor resist this.

Asked by Bloomberg Editor-in-Chief John Micklethwait if there was any positive impact from Brexit, Shafik paused. Her offering? The sunny summer enjoyed by Britain.

“The weather’s been really good since the referendum,” she told the audience at the Bloomberg Markets Most Influential Summit in London.

Time passes and it is easy to forget. But this was part of warming the UK up or giving Forward Guidance for a further Bank Rate cut to 0.1% and yet more QE in November. This did not happen because by then it was obvious even to those trying to turn a blind eye to it that the economic situation has been completely misread by the Bank of England. Those policy moves went into the recycling bin.

In an unusual development if we read between the lines it looks as though even the Financial Times agrees with me. This below from economics editor Chris Giles is some distance from the “rock star central banker” that Mark Carney was welcomed with.

With today’s perfectly reasonable BBC speculation that Minouche Shafik is a front runner for ⁦@bankofengland

⁩ governor, I am reminded how difficult it was to extract a clear view from her in an interview when deputy governor.

The latter sentence evokes memories of how Yes Prime Minister described such matters.

Doesn’t it surprise you? – Not with Sir Desmond Glazebrook as chairman.

– How on earth did he become chairman? He never has any original ideas, never takes a stand on principle.

As he doesn’t understand anything, he agrees with everybody and so people think he’s sound.

Is that why I’ve been invited to consult him about this governorship?

 

Comment

The situation is that we have had something of a litany of front-runners. This government is supposed to have favoured Gerard Lyons and Dame Helena Morrisey and Andrew Bailey was supposed to be a shoe-in before that. So the Shafik Surprise may quickly fade in the way she was moved out of the MPC to my alma mater the LSE. For these purposes I have ignored the rubbish she spoke about QE because pretty much everyone at the Bank of England quotes that and back in September 2016 she did perhaps inadvertently get something right.

BOE SHAFIKQE UNWIND DOES LOOK A VERY LONG WAY AWAY

Ever further away as we mull whether we will get weekly, then daily then hourly extensions of the term of Governor Carney?