Bank chief economist warns of a period of ‘flatlining’ growth

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BRITAIN’S economy is facing a period of “flattish growth”, according to the Bank of England’s chief economist.

Spencer Dale, who is also a member of the Bank’s Monetary Policy Committee, made the comments after meeting around 100 Yorkshire businesses during a two-day fact-finding tour of the region,

Speaking in Hull after visiting businesses in York, Driffield and Beverley, Mr Dale said he had been struck by the determination of local firms to gain clear guidance from the Government about energy policy.

Siemens is planning a huge factory to build offshore wind turbines at the Port of Hull, and it has been hoped that if it pushes ahead it could also attract other major manufacturers to set up bases along the banks of the Humber.

But the firm has yet to sign off a final deal and last month it was among several manufacturers who wrote to the Government calling for an end to the uncertainty over the level of Treasury support which will be available to the offshore wind industry.

Mr Dale said: “The message you get, particularly in Hull, is that, ‘We don’t want to get left behind.’

“I was really struck by just how many senior businessmen place considerable weight on the Siemens contract and getting a clear steer from central Government on energy policy.”

At its latest meeting, the MPC voted to maintain the official Bank rate paid on commercial bank reserves at 0.5 per cent.

Mr Dale and his colleagues carry out fact-finding tours of the UK regions, to help shape their policy decisions.

Mr Dale said: “For most people, the last couple of years have been tough. And for most people, if you ask them what’s happening to business conditions now, the adjective I hear is ‘it’s sort of flat’. Things aren’t going downwards, but likewise we’re not yet seeing any signs of very strong growth.

“It is striking that whenever you come out on these trips, you do also speak to businesses where things are going an awful lot better than that, so it’s not all doom and gloom... often it’s because people are exporting what they produce.

“For those who are exposed to the export sector, particularly if they are exporting to faster growing parts of the world, such as the Middle East and the Far East, you find that they have a good story to tell.”

During his trip to Yorkshire Mr Dale said he had heard success stories from manufacturers and hi-tech engineers.

He added: “Another story we heard last night at the dinner, was that there was another type of business that’s going well.

“Rather than exporting, these businesses made their USP (unique selling point) their knowledge of the local market. They provided really good, locally-based services, with a high emphasis on providing personal services with a strong local knowledge.”

Mr Dale said he had also met a local manufacturer who is doubling the size of his presence in India.

Bank of England policymakers disagreed over the exact impact of their asset purchases, according to the minutes of the Bank’s November meeting which were revealed on Wednesday.

David Miles was the only Monetary Policy Committee member to have voted for more QE this month, calling for another £25bn.

Inflation hit a five-month high of 2.7 per cent in October after a rise in university fees and food prices.

Speaking about the atmosphere at rate-setting meetings, Mr Dale said: “We’ll disagree, that’s the whole point of the MPC. The discussions are intense. There are two things to stress. One is that we are all trying to achieve the same thing, to hit the two per cent inflation target.

“We’re all in the same game. It’s done with considerable respect – nobody knows what the right answer is.

“Reasonable people will disagree, and moreover, you will learn and be persuaded by different arguments.

“We decided last week not to extend even further quantitative easing (QE).

“So far, we have carried out £375bn of QE. That money is providing considerable stimulus to the economy.

“What we have decided to do is not inject it even further, but that key stimulus is still there. At some point in the future, and I think this will be a quite considerable time in the future, based on our current forecasts, we will start to reverse QE.

He added: “Our central projection, in the inflation report we published last year, has inflation starting to fall back in mid 2013.

“Our central view is that inflation is sticky for the next year or so, and after that gradually gets down to target by early 2014.”

greg,wright@ypn.co.uk