Bank must restore its credibility

 
David Hellier
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OF all the people who regulated (or failed to regulate) the financial services industry throughout the banking crisis, Bank of England governor Mervyn King has emerged as the man whose authority has perhaps been most enhanced.

Going into the crisis with an institution that sets monetary policy and general supervision, he will emerge, thanks to chancellor George Osborne, from a major shake-up of the tripartite system with power over the regulation of the City following the takeover of the Financial Services Authority. But King, who presents the Bank of England’s quarterly inflation report today, is currently coming under fire in the City for the one thing his charges should really excel at: economic forecasting.

In May last year, the Bank’s official forecasts expected inflation in the second quarter of this year to come in at below one per cent. In the event it registered well above the Bank’s set target of two per cent at 3.4 per cent. To make matters worse, the Bank at the time estimated there was only a seven per cent probability of inflation topping three per cent.

Equally forecasts on economic growth have often proved too optimistic, with the Bank since 1997 on average predicting growth to be 0.9 per cent too high.

So way off beam have the Bank’s forecasts been that some economists are beginning to give them a wide berth. Says Simon Ward of Henderson Global Investors: “I’m not sure we should be giving the Bank’s forecasts much credibility given they’ve been shown to be very poor over the last few years.”

None of Ward’s cynicism will prevent today’s event being widely watched by the financial markets. They will look for signs of whether the Bank is more anxious about faltering growth or creeping inflation.

Signs of a slowdown in the housing market and a downturn in consumer confidence are increasing anxiety on growth, whereas rising petrol and food prices have raised fears of inflation.

The Bank needs to do better at predicting the future. It will surely get its policy response wrong if it cannot get its forecasts right.

RING RING

WHEN Metro Bank recently launched it made a big deal out of the fact that it would be dog friendly and that customers’ dogs would be welcomed with bowls of water.

Not being a dog owner this amused me but did not stand a chance of encouraging me to change my bank, which I have had (like many) since college days.

But one thing stuck in my mind after reading my colleague Roger Baird’s interview with Metro’s Craig Donaldson the other day; the pledge from the bank’s chief executive that calls to the bank would be picked up after no more than three rings.

That really would interest me. When I last called to add some televison channels to my VirginMedia package, I was put through to a series of voicemails. The last of these admitted that I would likely be held for some time and asked me to choose from a number of music genres, including Indie and Urban, to make my wait more enjoyable.

Sorry to sound old-fashioned, but there really is no substitute for answering that phone. If Metro Bank can actually do that, it might go far. david.hellier@cityam.com
Allister Heath is away