The Bank of England’s network of eyes and ears across the U.K. is increasingly being tapped for economic clues as Brexit distorts the headline indicators.
With the impact of stockpiling and shutdowns prompting volatile swings in some reports, policy makers have highlighted the need to look through the noise at a time of “highly elevated uncertainty.”
That’s increased the importance officials are placing on the reports of the BOE’s agents, along with their Decision Maker Panel survey of businesses. Minutes of policy makers’ discussions show multiple references to feedback from agents on the reaction of businesses to the extension of the U.K.’s deadline for leaving the European Union.
The BOE has nearly 30 agents across 12 regions, who gather information to feed back to the Threadneedle Street headquarters. An individual agent can visit hundreds of local businesses and other groups a year, with meetings ranging from trips to farms and food banks to roundtable discussions.
A member of the network briefs the Monetary Policy Committee before its decisions, and also plays a role in explaining the bank’s messages to firms on their patch.
The increased reliance on agents in times of uncertainty mirrors the approach taken in the immediate aftermath of the 2016 referendum, when the group upped the intensity of its intelligence gathering. The shift is further symbolized by the decision to publish the agents’ report alongside the BOE’s interest-rate decisions, rather than in separate releases.
The agents organize meetings between BOE officials and local businesses, giving the central bank direct contact with the real economy. Those experiences can go on to inform views on the outlook, with the differing experiences of individual businesses potentially feeding into the nuanced but emerging splits on the MPC.
The direct line to businesses gives the BOE an early insight into potential problems Brexit may bring, and provides the lion’s share of their insight into how firms are preparing.
Stockpiling, for example, had been a theme in the agents’ reports for some time before showing up in official data, where it pushed growth considerably higher in the first quarter before the impact started to unwind in April. Meanwhile, the BOE’s Decision Maker Panel provides officials with information on when companies started triggering their contingency plans and how prepared they feel for a chaotic departure from the EU.
“Clearly the data is very volatile and distorted by that stockpiling,” said Samuel Tombs, an economist at Pantheon Macroeconomics. “The data are harder than usual to read.”
The anecdotal reports also provide more immediate information than official numbers, which are published with a considerable lag, and is less prone to the large revisions often seen after the initial estimates of growth figures.