MPC's Haskel says there may be much more slack in the economy

Jonathan Haskel displayed a fairly 'dovish' bias in his appointment hearing before the Treasury Select Committee, suggesting that there might be more slack in the economy than previously thought.

Haskel was set to replace Ian McCafferty on the MPC in September.

In particular, he was questioned about past remarks made to the Financial Times in which he had said that interest rates might stay at a lower level than expected because wage pressures were weak.

In fact, he was specifically queried about why his stance differed from that of other more hawkish members of the Monetary Policy Committee such as Michael Saunders.

That, he said, was likely due to differences about the degree of slack that they judged still existed in the economy.

Nevertheless, during his hearing with the TSC, Haskel repeated on several occasions that he was not yet on the inside, meaning that he had not yet had access to all of the same information available to the rest of the MPC.

As befits a non-Executive Director of the UK Statistics Authority, throughout his hearing emphasised the need to continually revisit how things in the economy were measured, such as the degree of unemployment that existed.

He also emphasised the importance of maintaining a broad base of real world contacts in order to better monitor the economy.

When asked if he believed that the Bank of England might be fuelling a debt bubble at the moment, Haskel said that his sense was that households had been paying down debt since the Great Financial Crisis and that their balance sheets were now in a "much stronger position".

He also stated that it was an urgent priority to determine whether wage pressures were being overstated.

"May well be much more slack than you think in this much more varied labour market," he said.

As regards the potential implications of unwinding quantitative easing, he believed that if done "gradually" it should tend to have a minimal effect.

For Andrew Goodwin at Oxford Economics, several of Haskel's comments "hinted" at a more dovish bias than was then embedded in the MPC's central projection.

Among those, Goodwin explained, was Haskel's reference to the recent paper authored by Hugo Erken, according to whom a 'hard' Brexit might slash the annual rate of growth in so-called total factor productivity in the UK from 1.1% to 0.5%, with a 'soft' Brexit reducing it to 0.8%.

"So we see this switch of personnel as being consistent with our call that interest rates will rise only once in 2019 (following a hike in August 2019), with the risks skewed to the downside."