BoE chief economist hits the road

Charlie Bean is only a few hours into his two-day trip to the North-east of England when the dreaded "E" word comes up.

One business executive wants to know whether – and when – the Bank of England's chief economist thinks Britain will join the euro.

Mr Bean plays the question with a straight bat – as befits a man who once opened the batting with a youthful Graham Gooch. But the question sets the tone for much of the rest of the 30 hours he is in the North-east.

He has come with the intention of talking about the Bank's inflation report, published a fortnight ago, which is the key pointer for the future path of interest rates. But the businessmen he meets (and they are almost entirely male) want to talk about – well, pretty much anything except inflation and interest rates.

Mr Bean, a leading macroeconomist and former head of the economics department at the London School Economics, effectively has to act as a lightning conductor for complaints about Government policy.

Assuming Mr Bean's experience is replicated on the other 50 MPC regional visits a year, the Bank is dealing with queries on the exchange rate, red tape, European directives, national insurance contributions and even new rules on disposing of hazardous waste.

But Mr Bean is relaxed about his temporary role. "People use it as an opportunity to comment on everything on their patch," he says.

"It is interesting to know what the issues are that are affecting them although we occasionally have to say 'that's interesting but it is not something we can do terribly much about'. I suppose people think that even if it is not on the Bank's patch that we are connected into the Government and the Treasury as a conduit."

Businesses are certainly given ample opportunity to get their point across during a packed schedule. In between landing at Newcastle airport at 10.30am last Thursday – only to find his luggage had not come with him – and departing at 4pm the next day, he meets some 100 local business figures.

The trip includes three lunch or dinner meetings and visits to three companies, a ship repairers' yard, a tea blending and packing factory and a Japanese-owned mechanical plant factory.

Cynics might say these trips are a public relations exercise for a Bank of England that has been accused in the past of being too focused on the Home Counties. That attitude was given some justification three years ago when Sir Edward George, the Bank's Governor, agreed with a regional journalist's suggestion that redundancies in the North-east were a price worth paying to defeat a house price boom in the South.

Fortunately no one brings this up during Mr Bean's tour and he is insistent that the visit is extremely valuable.

"One thing that's interesting from these visits is the way that companies have responded to the challenges of the competitive environment that they are operating in," he says.

"I see different ways that firms have responded to this challenge and those that have not tend to fall by the wayside.

"One thing that always impresses me is the resilience of many companies and businessmen to adverse developments and their ability to find a path through." He cites a carpet manufacturer that has established a market in one-off pieces for casinos and a bus builder that focuses on the needs of the disabled.

Certainly Mr Bean expresses sincere interest in the businesses he visits, whether it is tasting five different teas, inspecting the underside of one of Her Majesty's ships or touring a production line. And he says the information from the visits – and the ongoing feedback delivered by the Bank's 12 regional agencies – has a critical role to play.

"Before I joined the committee I had not appreciated how much weight you would put on business surveys or agents' intelligence," he said.

The MPC's monthly monetary policy process, which begins tomorrow, consists of briefings from Bank staff economists, presentations from some of the agents and, according to Mr Bean, about 1,000 individual pieces of data.

"Sometimes the official numbers might look odd and the intelligence of the agents may help us make sense of that.

"The hardest part of knowing where the economy will be is to know where it is now. If we get that right that's half the battle."

All the businesses that Mr Bean met said afterwards that they found it very useful to be able to speak to a Bank of England official. Peter Howe, the managing director of Komatsu UK, said: "I hope the purpose of the visit is to see real life."

His company, a Japanese-owned factory near Chester-le-Street, makes about 3,000 mechanical excavators a year and has won two Queen's Awards for industry. Unsurprisingly Mr Howe's main concern is sterling's exchange rate. "They always acknowledge that it is tough and the exchange rate is too high and acknowledge all we have done in terms of coping with it. But it is only the government can influence that." He said exporters could not deal with swings in exchange rates of as much as 20 per cent.

"A lot of people, including the Chancellor of the Exchequer, say UK industry has to be more competitive and productive without telling us how we're to do it. I don't believe the Bank or its chief economist can directly affect any particular business but I hope that they can have a better understanding of what is going on in the economy."

This would be music to the ears of the Bank, which has spent years getting across the message that a cut in interest rates will not necessarily push down the pound. "I get the impression that businessmen have realised that the exchange rate is not really under our control," says Mr Bean.

"Back in 1997/98 when the MPC started and they were raising rates and the pound appreciated the exchange rate would have been a major topic of discussion," he says.

At A&P Tyne, a ship repairer in Wallsend, board director David Skentelbury says bluntly: "I believe entry into the euro would be beneficial to us as it sits today."

But neither company sees interest rates as an issue. "Rates are a device to manage inflation but are not a significant factor in our business," says Fred Newman, A&P Tyne's managing director. Mr Howe says: "Interest rates are not at the forefront of our mind."

Over at Ringtons, a family-owned tea merchant that is run by the great-grandson of the founder, the message is clear: low inflation is essential for stability. "We would say that it is the best thing that Mr Brown has ever done, to make setting interest rates and inflation targeting independent of the Government," the chairman Nigel Smith said.

At the lunch meetings away from the official factory visits – held on an off-the-record basis – the messages are more direct.

One company chief condemns next year's hike in employers' national insurance (NI) as a tax he must absorb as he cannot pass it on to customers. Another warns that workers are growing more militant in the face of NI increases and the growing crisis over pensions. There are also complaints about red tape, criticism of higher education policy, insurance costs tripling and banks overcharging.

It is a lot to absorb but Mr Bean seeks to separate out issues that might affect monetary policy, specifically whether higher wage costs will be absorbed or passed on.

"We are getting signals that the wage round may be a little bit tougher than it has been, particularly when we add concerns about pensions," he said. "That is something that we will be looking very closely at."

Overall the impression is that the economy has slowed and while manufacturers have borne the brunt, sectors such as retail, property, legal and financial services are doing fine.

As David Buffham, the Bank's agent in the region, put it: "One of the messages is don't fall for the stereotype, but drill down to take the temperature of the region."