July 17, 2017
When asked to explain the role of the Bank of England’s regional agents, we often describe them as the institution’s eyes and ears in every part of the UK.
The Bank has long recognised the value of having a regional presence on the ground.
It is the best way of making sure that, where possible, we take into account every part of the country’s diverse economy when setting policy.
The Bank of England has had a presence in the North East since 1828, when its first branch opened on the corner of Clavering Place and Bailey Gate in Newcastle.
And the Bank’s Agents have been watching and listening to developments in the local economy and sending their economic reports down to Threadneedle Street ever since.
Much has changed in the ensuing years: regional bank notes bearing the Newcastle name have long gone; today we have a new polymer fiver and a new polymer tenner will follow soon.
The bank’s role has evolved, too. These days you might find us visiting primary schools to talk to children about the importance of budgeting or talking to local charities about the pressures facing those struggling to make ends meet.
But the biggest part of our job is still to listen to the region’s business community.
Every year we hear from more than 500 North East businesses, large and small, about what they are seeing in their companies, from the strength of demand for their products to any pressures they are feeling on pay and other costs.
The bank’s policymakers use the information we gather from our contacts to directly inform their decisions including on the appropriate level of interest rates.
The importance attached to the information that we gather from our contacts has arguably never been greater; it’s a message we hear time and again from senior policymakers on their regular visits to the region.
In the last seven months, we have hosted two deputy governors, the bank’s chief economist and an external member of the Monetary Policy Committee. All have stressed the value they have taken from the meetings they have held with a variety of our contacts.
So what messages are we currently hearing?
Most of the businesses we talk to are reporting growth in activity overall, albeit in some cases at a weaker rate than in recent years. We do come across some cases of quite exceptional growth, however, often among smaller companies in the region’s fast-growing tech sector.
There is no doubt that uncertainty remains elevated. This is especially true for those companies that are exposed to the outcome of the Brexit negotiations.
Although this uncertainty is dragging on some companies’ willingness to invest, we have seen a pickup in some types of investment over recent months.
In particular, companies continue to invest in technology to drive efficiencies and productivity gains, some services businesses are modernising their offices to aid the recruitment and retention of staff, and – as we see clearly in Newcastle – investment remains high in the leisure sector.
An encouraging feature of our conversations recently has been an increase in exporting activity, often supported by the weaker pound and a strengthening global economy.
Another regular topic is the difficulty many businesses find in recruiting staff with the skills they require to expand. In some cases this is putting upward pressure on pay levels even though, across the economy as a whole, wage inflation remains quite muted.
This muted pay pressure has been a surprising feature for the bank’s policymakers given how much unemployment has fallen in recent years. That fall has been particularly sharp in the North East recently, with the region no longer having the highest rate of unemployment in the UK.
The evolution of pay settlements will be crucial for the Monetary Policy Committee as they consider the outlook for inflation as we would expect higher pay to eventually feed through into higher prices. The intelligence we receive from our contacts is crucial in helping their understanding on this key issue.
Another area where our contacts are helping is how higher import prices are feeding through supply chains.
And while our latest intelligence suggests that the direct impact of the fall in sterling on cost inflation for manufacturers’ raw materials has eased, increased costs are continuing to pass through supply chains into retail prices.
We are hugely grateful for the time that business leaders across the North East give us in helping to build an accurate picture of what’s really happening in the UK economy.
In doing so they don’t just help the Bank of England, but also our region, which can only benefit from having its voice heard in the discussions that lead to policy decisions being taken in London.
As these uncertain times unfold, those voices will only become more important. So we’ll work even harder to ensure they are heard loud and clear.
Bank of England
Andrew Hebden is deputy agent for the Bank of England in the North East @BoENorthEast