Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. Gunnar, thank you so
Speaker 1: much for speaking to Bloomberg. So you had the decisive vote.
Speaker 1: How close was it? Was it like fifty to fifty
Speaker 1: or twenty eighty.
Speaker 2: Well, for me, if we go back to August, these
Speaker 2: sort of two risks that were balancing, that inflation might
Speaker 2: be more persistent is obviously above target at the moment,
Speaker 2: and that it might be more persistent and it doesn't
Speaker 2: come down although that's our central view against the fact
Speaker 2: that we see evidence of the economy softening now. In August,
Speaker 2: I would say I was concerned more on the upside risk,
Speaker 2: but I think the news that we've had subsequent to
Speaker 2: that has left me in a more balanced position. So
Speaker 2: that was very much my view. But as I said,
Speaker 2: as I've said a number of times, we do need
Speaker 2: to see more evidence because so far we've had one
Speaker 2: inflation number that's coming you know under what we've autually
Speaker 2: obviously good. We need to see some more.
Speaker 1: So what would swear you actually for December? And when
Speaker 1: you say that it was balanced, does it mean that
Speaker 1: one extra data point would it make?
Speaker 2: Well? Actually, by December we'll actually have two because we
Speaker 2: have we have two months off of data between now
Speaker 2: and our December decisions. So we'll have two sets of
Speaker 2: inflation numbers, two sets of labor market numbers, two sets
Speaker 2: of most other numbers as well, So that will be important.
Speaker 1: Governor, you've said that the terminal rate is uncertain, even
Speaker 1: though we're now closer to where the market thinks that
Speaker 1: it is. So when do you know when we've reached it?
Speaker 2: Well, in one sense, of course, logically, wherever it is,
Speaker 2: we must be closer to it. If it's below below
Speaker 2: where policy rate is now, which I think it is,
Speaker 2: I'm afraid. I'm in the school where the uncertainty around
Speaker 2: exactly where it is is very such fintancial, all the
Speaker 2: estimates of it a very big band of uncertainty around it.
Speaker 2: So I tend to look more at the sort of
Speaker 2: the in any given point in time, you know, what
Speaker 2: are the monetary conditions that we're experiencing, and do they
Speaker 2: suggest now? I think the conditions at the moment suggest
Speaker 2: that policy remains restrictive if we've probably we've passed peak restriction,
Speaker 2: I think. But that's not surprising. We've been cutting rates
Speaker 2: in it no surprise that that's what we intended. But
Speaker 2: I think it remains restrictive for the.
Speaker 1: Moment, but could you reach it and not know it.
Speaker 2: Well, again, we'll have to look at what we will
Speaker 2: discern is through the conditions that we see in the economy.
Speaker 2: We have a number of ways of looking at the
Speaker 2: minetary transmission mechanism, and that's how we will do it.
Speaker 1: Governor, you've also said that decisions become closer calls as
Speaker 1: we near the end of the easing cycle. Does that
Speaker 1: mean that we could have bigger pauses in between cuts
Speaker 1: that we currently.
Speaker 2: Have, Well, I think that really depends on course, on
Speaker 2: how conditions evolve. I think the point we're making there
Speaker 2: is obviously the neara you get to wherever this sort
Speaker 2: of neutral rate is, you're going to be slowing. You've
Speaker 2: got you've got to land the thing. Actually, I think
Speaker 2: that's the point we're really making. So you know, as
Speaker 2: we come down the sort of the path you would
Speaker 2: expect some we've got to land.
Speaker 1: It, hope, So longer pauses, Well.
Speaker 2: At some point you'd like to think obviously we're in
Speaker 2: a sort of you know, newtual conditions. I mean that
Speaker 2: will always depend upon the shocks that we're saying. Of course,
Speaker 2: around how those evolved. But you'd like to think we'll
Speaker 2: get to that point. I'd like to think we'll get
Speaker 2: to that point.
Speaker 1: I know the BOE doesn't assume anything about the budget,
Speaker 1: and of course you take fiscal policy as when it's
Speaker 1: set out in the budget. But as governor, what would
Speaker 1: you like to see most in terms of broad fiscal
Speaker 1: impulse from the Chancellor?
Speaker 2: Oh? Well, I'm going to wait for the chancer to
Speaker 2: announce it on the twenty six this month.
Speaker 1: How would you describe your working relationship with the Chancellor? Oh?
Speaker 2: Very good, very good. We talk quite often. You know,
Speaker 2: it's a good relationship.
Speaker 1: There's nothing there's nothing else that you can tell us
Speaker 1: in terms of what you're what you're hoping for. Have
Speaker 1: you have you told her what would be helpful for
Speaker 1: for that budget?
Speaker 2: For you? Honestly, I think it's it's not helpful for
Speaker 2: me to in any sense. You know, you use my
Speaker 2: public pulpit to put pressure on the Chancellor. I think
Speaker 2: it's a very important budget. I think the chance is
Speaker 2: well aware it's a very important budget. Talk about monetary conditions.
Speaker 2: We talk about economic conditions a lot, which we should
Speaker 2: do the government transer should be doing that and I
Speaker 2: think it's important we have those conversations, but I'm not
Speaker 2: going to use my pulpit to in the sense contribute
Speaker 2: to the open debate that's going on.
Speaker 1: Would you say the trend growth rate in the UK
Speaker 1: economy has been reset lower since Brexit and since the pandemic.
Speaker 2: Well, when you look at it, actually it's really going
Speaker 2: back to around the time of the global financial crisis
Speaker 2: that the trend growth rate came down. Now, I'm not, however,
Speaker 2: so convinced that in the longer run, it was caused
Speaker 2: by the global financial crisis. I think that may be
Speaker 2: a coincidence of timing, because I think it's far more
Speaker 2: to do with underlying technological change and innovation in the economy.
Speaker 2: But what we've certainly seen over now sort of about
Speaker 2: fifteen years a bit more is a fall, particularly in
Speaker 2: productivity growth. By the way, the UK cours is not
Speaker 2: unusual in this respectum me and a lot of other
Speaker 2: economies are in the same place. And I think in
Speaker 2: the longer run that does come down to the whole
Speaker 2: question about innovation and the economy, investment in the economy,
Speaker 2: and it does come down to this question about whether
Speaker 2: we're going to see you know, something pretty substantial over
Speaker 2: time come from particularly AI and the sort of the
Speaker 2: whole tech world that's around it.
Speaker 1: Do you worry about AI being in a bubble and
Speaker 1: also do you worry about private credit of like a
Speaker 1: market event? Should I?
Speaker 2: Well, so, I think let's take AI first. It is
Speaker 2: perfectly possible that we could both see AI be the
Speaker 2: next if you like, dial mover in terms of productivity
Speaker 2: in the economy. Yeah, in this world what I call
Speaker 2: general purpose technology, things that in a sense cause innovation
Speaker 2: right across the economy, just like the Internet did about
Speaker 2: steam engines did originally. And it is perfectly possible that
Speaker 2: we could get that very positive results. And it's also
Speaker 2: possible that we could get a bubble because the market
Speaker 2: is having to value the future stream of earnings from
Speaker 2: this innovation, whatever it might be. It's perfectly possible that
Speaker 2: there will be a stream of earning is quite a
Speaker 2: positive stream of earnings, but the market will overvaluate. I
Speaker 2: don't know, but it's something we have to watch for.
Speaker 2: So these things are not in any sense incompatible in
Speaker 2: that respect, so we have to watch the valuation question
Speaker 2: obviously very carefully. Private assets, I think there's nothing per
Speaker 2: se wrong about private assets. I think that's an important
Speaker 2: thing to say. But it is a more opaque world.
Speaker 2: So again we do have to understand that world. And
Speaker 2: we're going to be doing what we are doing a
Speaker 2: lot of work at the bank, and we'll be doing
Speaker 2: a lot of work at the bank. To do that,
Speaker 2: we have to understand that there are while there has
Speaker 2: been something that there's been an increase in non bank
Speaker 2: the non bank world, if you like, relative to the
Speaker 2: bank world. These two systems are heavily interconnected. So the
Speaker 2: banking world is still heavily interconnected. It's the many ways.
Speaker 2: That's the provider of liquidity of course to the system.
Speaker 2: The other thing, you know, I do think it's important
Speaker 2: is obviously had these couple of cases and the so
Speaker 2: we have to judge, you know, where I put it is,
Speaker 2: are they idiosyncratic? Are they the canary and the coal mine?
Speaker 2: And I do think I go back to the financial
Speaker 2: crisis for a moment. I mean, a lot of people,
Speaker 2: you know, before a financial crisis said subprime mortgages are
Speaker 2: too small a part of the world to cause a
Speaker 2: global financial crisis, and that was wrong. It's also the
Speaker 2: case that you can look back now and say, well,
Speaker 2: with the benefit of actually be hindsight, the default rate
Speaker 2: in the US mortgage market wasn't as big as you
Speaker 2: know people sort of feared it would be. But in
Speaker 2: the meantime we had a global financial crisis, and of
Speaker 2: course a lot of that is to do with confidence,
Speaker 2: and of course opacity, you know, is something that can
Speaker 2: be difficult and dangerous in terms of confidence. So again,
Speaker 2: I think it's important that we may ensure that enough
Speaker 2: light is cast on this world that people can remain
Speaker 2: confident about it.
Speaker 1: Just a quick final question, Nigel pharaohs to us speaking
Speaker 1: about you, that this is a quote he's had a
Speaker 1: good run. We might find someone new.
Speaker 2: What do you say to that, Well, I made a
Speaker 2: commitment to serve out my whole term. That's what I
Speaker 2: intend to do, and there's no desire to change. I've
Speaker 2: read you know. It was the cordial meeting we had.
Speaker 2: You may have seen the letter that I wrote following
Speaker 2: the letter that Richard Tice wrote to me, and I
Speaker 2: wrote quite a long letter back explaining particularly these two
Speaker 2: issues QT and interest on reserves. There are some differences
Speaker 2: of you, but we had a vercordial meeting. I intend
Speaker 2: to serve out my full term as governor