Bloomberg Audio Studios, Podcasts, Radio News. Gunnar, thank you so much for speaking to Bloomberg. So you had the decisive vote. How close was it? Was it like fifty to fifty or twenty eighty.
Well, for me, if we go back to August, these sort of two risks that were balancing, that inflation might be more persistent is obviously above target at the moment, and that it might be more persistent and it doesn't come down although that's our central view against the fact that we see evidence of the economy softening now. In August, I would say I was concerned more on the upside risk, but I think the news that we've had subsequent to that has left me in a more balanced position. So
that was very much my view. But as I said, as I've said a number of times, we do need to see more evidence because so far we've had one inflation number that's coming you know under what we've autually obviously good. We need to see some more.
So what would swear you actually for December? And when you say that it was balanced, does it mean that one extra data point would it make?
Well? Actually, by December we'll actually have two because we have we have two months off of data between now and our December decisions. So we'll have two sets of inflation numbers, two sets of labor market numbers, two sets of most other numbers as well, So that will be important.
Governor, you've said that the terminal rate is uncertain, even though we're now closer to where the market thinks that it is. So when do you know when we've reached it?
Well, in one sense, of course, logically, wherever it is, we must be closer to it. If it's below below where policy rate is now, which I think it is, I'm afraid. I'm in the school where the uncertainty around exactly where it is is very such fintancial, all the estimates of it a very big band of uncertainty around it. So I tend to look more at the sort of the in any given point in time, you know, what are the monetary conditions that we're experiencing, and do they
suggest now? I think the conditions at the moment suggest that policy remains restrictive if we've probably we've passed peak restriction, I think. But that's not surprising. We've been cutting rates in it no surprise that that's what we intended. But I think it remains restrictive for the.
Moment, but could you reach it and not know it.
Well, again, we'll have to look at what we will discern is through the conditions that we see in the economy. We have a number of ways of looking at the minetary transmission mechanism, and that's how we will do it.
Governor, you've also said that decisions become closer calls as we near the end of the easing cycle. Does that mean that we could have bigger pauses in between cuts that we currently.
Have, Well, I think that really depends on course, on how conditions evolve. I think the point we're making there is obviously the neara you get to wherever this sort of neutral rate is, you're going to be slowing. You've got you've got to land the thing. Actually, I think that's the point we're really making. So you know, as we come down the sort of the path you would expect some we've got to land.
It, hope, So longer pauses, Well.
At some point you'd like to think obviously we're in a sort of you know, newtual conditions. I mean that will always depend upon the shocks that we're saying. Of course, around how those evolved. But you'd like to think we'll get to that point. I'd like to think we'll get to that point.
I know the BOE doesn't assume anything about the budget, and of course you take fiscal policy as when it's set out in the budget. But as governor, what would you like to see most in terms of broad fiscal impulse from the Chancellor?
Oh? Well, I'm going to wait for the chancer to announce it on the twenty six this month.
How would you describe your working relationship with the Chancellor? Oh?
Very good, very good. We talk quite often. You know, it's a good relationship.
There's nothing there's nothing else that you can tell us in terms of what you're what you're hoping for. Have you have you told her what would be helpful for for that budget?
For you? Honestly, I think it's it's not helpful for me to in any sense. You know, you use my public pulpit to put pressure on the Chancellor. I think it's a very important budget. I think the chance is well aware it's a very important budget. Talk about monetary conditions.
We talk about economic conditions a lot, which we should do the government transer should be doing that and I think it's important we have those conversations, but I'm not going to use my pulpit to in the sense contribute to the open debate that's going on.
Would you say the trend growth rate in the UK economy has been reset lower since Brexit and since the pandemic.
Well, when you look at it, actually it's really going back to around the time of the global financial crisis that the trend growth rate came down. Now, I'm not, however, so convinced that in the longer run, it was caused by the global financial crisis. I think that may be a coincidence of timing, because I think it's far more to do with underlying technological change and innovation in the economy.
But what we've certainly seen over now sort of about fifteen years a bit more is a fall, particularly in productivity growth. By the way, the UK cours is not unusual in this respectum me and a lot of other
economies are in the same place. And I think in the longer run that does come down to the whole question about innovation and the economy, investment in the economy, and it does come down to this question about whether we're going to see you know, something pretty substantial over time come from particularly AI and the sort of the whole tech world that's around it.
Do you worry about AI being in a bubble and also do you worry about private credit of like a market event? Should I?
Well, so, I think let's take AI first. It is perfectly possible that we could both see AI be the next if you like, dial mover in terms of productivity in the economy. Yeah, in this world what I call general purpose technology, things that in a sense cause innovation right across the economy, just like the Internet did about steam engines did originally. And it is perfectly possible that
we could get that very positive results. And it's also possible that we could get a bubble because the market is having to value the future stream of earnings from this innovation, whatever it might be. It's perfectly possible that there will be a stream of earning is quite a positive stream of earnings, but the market will overvaluate. I don't know, but it's something we have to watch for.
So these things are not in any sense incompatible in that respect, so we have to watch the valuation question obviously very carefully. Private assets, I think there's nothing per se wrong about private assets. I think that's an important thing to say. But it is a more opaque world. So again we do have to understand that world. And we're going to be doing what we are doing a lot of work at the bank, and we'll be doing
a lot of work at the bank. To do that, we have to understand that there are while there has been something that there's been an increase in non bank the non bank world, if you like, relative to the bank world. These two systems are heavily interconnected. So the banking world is still heavily interconnected. It's the many ways. That's the provider of liquidity of course to the system.
The other thing, you know, I do think it's important is obviously had these couple of cases and the so we have to judge, you know, where I put it is, are they idiosyncratic? Are they the canary and the coal mine? And I do think I go back to the financial crisis for a moment. I mean, a lot of people, you know, before a financial crisis said subprime mortgages are too small a part of the world to cause a
global financial crisis, and that was wrong. It's also the case that you can look back now and say, well, with the benefit of actually be hindsight, the default rate in the US mortgage market wasn't as big as you know people sort of feared it would be. But in the meantime we had a global financial crisis, and of course a lot of that is to do with confidence, and of course opacity, you know, is something that can
be difficult and dangerous in terms of confidence. So again, I think it's important that we may ensure that enough light is cast on this world that people can remain confident about it.
Just a quick final question, Nigel pharaohs to us speaking about you, that this is a quote he's had a good run. We might find someone new.
What do you say to that, Well, I made a commitment to serve out my whole term. That's what I intend to do, and there's no desire to change. I've read you know. It was the cordial meeting we had. You may have seen the letter that I wrote following the letter that Richard Tice wrote to me, and I wrote quite a long letter back explaining particularly these two issues QT and interest on reserves. There are some differences
of you, but we had a vercordial meeting. I intend to serve out my full term as governor