The Bank of England is to move some of its operations out of London, the incoming governor revealed yesterday.
Andrew Bailey told MPs that officials were looking at the Bank’s regional presence and that a move was planned.
John McDonnell, the shadow chancellor, has called for much of the Bank to be relocated to Birmingham to break a perception of London bias on policy.
Mr Bailey told the Commons Treasury select committee: “There has been a lot of discussion around where the Bank locates itself. The Bank has already started work on this and I think the time has come to ask what’s the right distribution?
“This is on the agenda. Where will it go? Because I have not been involved in the discussions, I don’t know. But I’m happy to report back when I’ve had a chance to take that forward.”
Research commissioned by Mr McDonnell concluded that the Bank’s focus on London was “unsatisfactory and leads to the regions being underweighted in policy decisions”.
The Bank has a network of regional agents that gather intelligence from companies across the country and ratesettters regularly visit the regions, but its 4,000 staff are based in the City of London.
Mr Bailey, 60, who takes over at the Bank on March 16, also revealed that he planned to end its investment in fossil-fuel companies as he takes up his predecessor Mark Carney’s climate change campaign. Through its £9.8 billion corporate bond purchase scheme, part of the £445 billion quantitative easing portfolio, the Bank owns £300 million of debt in oil and gas companies including Total and BP, as well as bonds issued by Rio Tinto for its former coalmining operations.
“Should we shift that? I think there is a very strong argument for doing that,” Mr Bailey said. “We would have to agree that with the Treasury. I think it is a perfectly sensible thing and I will take if forward. It will be a priority.”
He also hinted at a shift in the balance of power between the central bank and government in what could prove to be a big change from Mr Carney’s six-and-a-half-year tenure.
There should be a bigger role for fiscal policy in future due to structural changes in the economy, Mr Bailey said. Interest rates can only address “short-term demand” by bringing forward spending but fiscal policy can be used to reshape the economy, he said.
Mr Bailey gave investing in regional infrastructure to raise productivity as an example and backed the prime minister’s “levelling up” agenda.
Rates can be cut from the present level of 0.75 per cent to 0.1 per cent and, once QE and forward guidance are taken into consideration, there are 2.5 percentage points of monetary headroom, he said, echoing comments by Mr Carney. It would be better to have more headroom, he said. In a departure from the era when central banks were “the only game in town”, he called for more government spending, which he said would help the Bank to rebuild policy headroom.
“Much of the analysis of [persistent low interest rates] points to a larger share for structural factors,” the new governor said.
“It would therefore seem odd to respond entirely by using a short-run demand management tool.”
