Rosie Smith, Senior Bank of England official

Oct 4 2010 by Peter McCusker, The Journal

After six months the Bank of England's new agent for the North East, Rosie Smith, is evangelical about the region.

Having rarely ventured further north than Yorkshire it was quite an upheaval for Rosie Smith to relocate to the North East. But in March the Kent-born financial expert decided to up sticks four days a week from the Leicestershire home she shares with her husband and two young sons to take up her new job.

Smith is now finding her feet, discovering the hidden secrets and delights of the region, and learning there is more to the North East than post-industrial decline and non-wealth generating public services.

The Kent-born senior Bank of England official sees herself as the conduit between the North East business community and the financial decision-makers in London.

She says: “I am the eyes, ears and mouthpiece of the bank in the region. The role involves talking to people, businesses, organisations and some public sector bodies about the economy, how it is affecting them, what they are doing in their businesses and what they are expecting going forward. We report our findings to the Monetary Policy Committee (MPC) in a six to seven- page report every month.”

This report is amalgamated with reports for the 12 other regions of the UK into a nationwide document published on a monthly basis.

She continues: “My role is to be a link between London and the North East. In a sense I am the conduit between the North East economy and the policy makers in London.

“I talk to the MPC members frequently, I know them well, and twice a year we meet them in a formal setting to give them a briefing on the region.

“They may also want specific information on the regional economy on an ad hoc basis which we are able to provide. They often come to visit the region and genuinely want to know what businesses in the region want. It is important for the regions to know that the Bank is not hidden away in some London ivory tower.”

Smith, with a mild South East accent, is amiable and a far cry from the image of the starchy senior Bank of England official one might expect.

She joined the Bank of England at the age of 18, straight from school after finishing her A-levels in her home town of Sittingbourne in Kent.

That was 24 years ago. During that time she says she has done “so many different jobs and so many different things”.

The Bank supported her during the successful completion of a BSc in financial economics from the University of London and an MBA in financial studies from the University of Nottingham.

For the last 11 years she has been the Bank’s deputy agent for the East Midlands and earlier this year she replaced David Buffham as the agent for the North East. Without any hint of affectation she says she “loves the Bank”.

But the institution has come in for criticism for its role in the worst economic slump for half a century. Smith concedes. “Some things were done wrongly and going forward we need to understand better how the financial markets work.”

She believes the tripartite regulatory system failed to spot the looming risks, although this has now been changed and Smith highlights the role of complex financial instruments played in the global crash.

“Institutions thought that by packaging together credit bundles they were lessening the risk, many people did not know what they were buying, and this had the opposite effect and exposed financial organisations to greater risk.”

She says measures to lessen the ability of banks to damage the world’s economy so badly are necessary, although the most appropriate ways have yet to be determined.

Measures to increase bank reserves are important, and other things that need to be on the table include the separation of investment banking from retail banking. She says it is important to create a situation where there will no longer be fears that a bank is too big to be allowed to fail.

The MPC has failed to hit its Government pre-determined inflation target for over two years. “The economic shock has made it very difficult,” she contends.

Although, along with the Bank of England, she believes the current 1% overshoot at just over 3% stems from the return of VAT to 17.5% earlier this year.

Next year’s additional VAT rise will also maintain inflation at its current level and is not expected to meet targets again until mid-2011, says Smith.

Last week outspoken MPC member Adam Posen put the cat among the pigeons by declaring his support for the resumption of Quantitative Easing (QE).

He believes that unless stimulus is given to the economy through an additional cash boost then the spare capacity at many firms will be lost. He says that this could push up inflation once the recovery gathers pace.

Smith refuses to be drawn on Posen’s remarks but says her conversations in the North East suggest many firms do have spare capacity and says she sees his reasoning and says there is no guarantee that firms will be happy to live with this unused capacity indefinitely.

While QE was essentially designed to allow more money to be leant to businesses there are still a great many companies angry with the banks for not opening their vaults.

Smith says: “Quantitative Easing worked, it put more money into the economy and reduced the cost of borrowing as we witnessed through falls in long term gilt and bond yields.

“It would appear that most of the money was used to lend to the larger companies and I hear the same noises from North East business that they are not getting the money from the banks. Conversely the region’s bankers tell me they have the money to lend and are lending.

“I’ve no doubt that both sides are right, but there does appear to be a mismatch. Perhaps the banks just don’t want to lend the money to the people who want to borrow it?”

Smith’s views will be fed back to the MPC policy-makers along with information about the North East’s manufacturing output, optimism and pay settlements. Her monthly reports to the MPC grade business confidence on a spectrum from -5 to +5.

While not prepared to say what the current number is, and keen to point out there are regular monthly fluctuations, she says the North East numbers are getting more positive.

“People are talking more about the future, about the possibility of employing more people, although many businesses would still like to see more clarity,” she says.

“Many are talking about how they hope the spending review will be able to provide this. There is a feeling that this will give business a guide to the extent of the job losses in the region and how this is going to impact their customers.”

She say she has been impressed by the strength of the region’s exporters and impressed by the “buzz” being generated by the developments in the green energy sector.

“Things are getting better. There are no clear sectoral stories. A lot of the positive things that are happening in the region are down to the exporters of both goods and services.”

While too professional to say so, you can sense that leaving behind her two young boys and husband in the Midlands was real wrench for Smith.

She works from her Leicestershire home on a Friday and returns north on a Monday although there are many diversions to and from London too.

Smith has been a quick convert to the delights of the North East. She loves the Northumberland countryside and Durham and says the message is now getting through to many of her friends from the south.

“Newcastle is a clean modern city, a far cry from the smoggy industrial one still imagined by many down South. The North East has a lot to shout about,” she smiles.