LONDON (Reuters) - Andrew Bailey, set to become Bank of England governor just as Britain is facing an economic hit from coronavirus, said financial support would probably have to be rushed out for companies struggling with disruption caused by the outbreak.
Investors have ramped up their bets that BoE will cut interest rates, possibly before the first scheduled policy announcement under Bailey on March 26, as the spread of the virus takes its toll on the global economy and supply chains.
Bailey said the impact of coronavirus would be his top priority when he moves from his current job as head of the Financial Conduct Authority (FCA) regulator to replace Mark Carney as BoE governor on March 16.
“I am not in any sense reducing the importance of monetary policy, (but) all the focus is on monetary policy,” Bailey told parliament’s Treasury Committee on Wednesday.
“I think it is quite reasonable to expect we are going to have to provide ... some form of supply chain finance in the not very distant future now to ensure that the effects of this shock from the virus are not damaging to many forms of activity.”
British finance minister Rishi Sunak is due to announce a budget statement on March 11.
Business surveys have shown the disruption is starting to affect Britain’s economy as it led to a record increase in measures of delivery times for British manufacturers. [GB/PMIM]
Bailey said smaller companies in particular would need support, and quickly.
On Tuesday, the U.S. Federal Reserve announced a surprise interest rate cut, raising speculation that the BoE and other central banks would follow suit. The Bank of Canada cut rates as Bailey answered questions in parliament.
On monetary policy, Bailey echoed views expressed by top BoE officials, saying the central bank’s benchmark rate could be lowered to about 0.1% from 0.75% now, and that the BoE’s firepower was “uncomfortably close” to the average size of rate cuts deployed to counter past economic downturns.
Bailey, a former BoE deputy governor with 30 years’ experience at the central bank, has been criticized in his current job for being too lenient on financial firms that engaged in misconduct.
He faced question after question - some of them pointed - about his record at the FCA from lawmakers on Wednesday.
“I am proud of what we have achieved. I am not proud of some of the things that have happened during my time,” Bailey replied, saying the FCA’s powers were restricted by law.
When asked by the Treasury Committee’s chair Mel Stride if he was sufficiently nimble to head a major central bank, Bailey recalled how he helped prevent a collapse of Britain’s banking system over a decade ago when he was a senior BoE official.
“We had to do things in short order during that (financial crisis) period which were pretty unprecedented, absolutely unprecedented in the history of certainly the Bank, and we had to do them at short notice,” Bailey said.
Another lawmaker questioned if he would really “speak truth to power” and uphold the BoE’s independence from the government.
“Yes,” replied Bailey.
Additional reporting by Paul Sandle, Sarah Young and Costas Pitas, writing by Andy Bruce; editing by William Schomberg/Mark Heinrich