LONDON, March 28 (Reuters) - When Andy Haldane starts his new job as the Bank of England’s next chief economist in June, he is likely to bring with him some striking new ideas about how the central bank should help manage the British economy.
In his current BoE role overseeing risks to the economy from the banking sector, Haldane is known for his outspoken views on controlling the “stomach-churching highs and lows in the credit and asset price cycle,” which chime with those of Governor Mark Carney.
Haldane, 46, was named to the high-profile chief economist post last week as part of a broader shake-up of the Bank by Carney, who nine months into his job is seeking to widen its focus beyond its official inflation-fighting mandate.
Haldane is used to taking a different view on things too.
In 2012, he addressed a gathering of the anti-capitalist Occupy movement and praised it for suggesting new ways to fix the shortcomings of global finance.
Last year, he said central banks had “blown the biggest government bond bubble in history”, making crystal clear his doubts about the BoE’s 375 billion pound ($623 billion) bond-buying programme which was central to its response to Britain’s deep recession.
While those comments raised eyebrows within the BoE, his views on the need to take central banking forward are close to those of Carney.
Haldane speaks of how policymakers focused too much on inflation targets and not enough on managing credit flows, which meant they failed to head off the 2007-09 financial crisis.
Carney sounded a similar note when he reshuffled the BoE last week, criticising the “reductionist vision of a central bank’s role” in recent decades and saying financial stability was as important to running an economy as price stability.
The two men have not always seen eye-to-eye, however.
Haldane’s call two years ago for complicated financial regulations to be boiled down to their simplest form - in a speech entitled ‘The Dog and the Frisbee’ - met with an unusually blunt riposte from Carney.
“Andrew Haldane’s conclusion is not supported by the proper understanding of the facts,” said the then-head of the Bank of Canada, who was also the leading proponent of the Basel III global accord that forces banks to hold more capital.
Haldane’s 25-year career at the Bank has not suffered as a result of those differences, however.
When he replaces Spencer Dale as chief economist - and takes his seat on the BoE’s rate-setting committee - the job will be broadened far beyond its current focus.
As well as monetary policy issues, he will lead research into the Bank’s sweeping new responsibilities to prevent Britain’s banks from bringing the economy to its knees again, just as the housing market is heating up again.
Haldane this month pointed to how South Korea has used so-called macroprudential measures on credit to manage its housing market rather than the blunter tool of interest rates.
Bringing Haldane’s expertise on banking to the Monetary Policy Committee is part of what Carney calls the new “One Bank” culture at the BoE. That represents a big change from the days of the Bank’s previous governor, Mervyn King, who prioritised the fight against inflation and was widely seen as having little interest in financial stability before the crisis.
David Tinsley, an economist at BNP Paribas, said BoE research had “only scratched the surface” on the merits of using credit measures to steer an economy that has relied on monetary stimulus to chart a path back to normality.
Haldane has experience of both sides of the Bank, having worked on monetary policy strategy and inflation-targeting before he was appointed by King as executive director for financial stability.
“It’s kind of coming home for him, and putting at the heart of the monetary policy function someone who knows about the financial system is exactly what was needed,” said David Green, a former BoE and Financial Services Authority official.
It remains to be seen how successful Haldane is in helping the BoE improve its much criticised forecasting record. This took another hit recently after unemployment plunged to its threshold level for considering an interest rate hike in a matter of months, rather than the three years it had suggested.
He will still have room for blue-sky thinking, which occasionally results in impractical ideas, Bank watchers say.
As part of the BoE revamp, a new post of director for macroeconomic analysis is being created, a role which will take over the nitty-gritty work of putting together the Bank’s quarterly economic forecasts.
Given his focus on financial stability issues, little is known of Haldane’s views on the critical questions facing the Monetary Policy Committee, chief among them how long it can hold off on raising interest rates as the economy recovers.
One economist said his strong support for the use of credit management tools suggested Haldane would not be among the first policymakers to call for an interest rate hike.
“If you think interest rates should be raised to deal with rising house prices, he’s not the person for it,” the economist said, asking not to be named. ($1 = 0.6019 British Pounds) (Writing by William Schomberg; Editing by Hugh Lawson)