Access London Article: Interview with IOD's Chief Economist Graeme Leach

Interview with Graeme Leach:

In November 2013 it was announced that the Chief Economist and Director of Policy at the Institute of Directors, Graeme Leach, will be leaving his role in January to join the Legatum Institute. Before moving, Abigail Davies spoke with Mr Leach at the London headquarters of the IoD to talk about the economy:

Q: Can you see interest rates rising anytime soon, and at what rate if they do?

The $64,000 question! In the two and a half per cent inflation case I can’t see any reason why interest rates would need to rise next year. I think the first stage, or any sign, of heightening interest rates would actually be preceded by an ending of quantitative easing; I think they’d hit that button first and interest rates second.

There is nothing alarming on the inflation front either, though there is an upside inflation risk if we are wrong on the level of spare capacity.

But there’s no real risk of heightening interest rates. Bear in mind that with forward guidance, unemployment would have to fall quite a bit more for them to consider an increase in interest rates.  And just as companies shed less labour in the downturn, in return for reduced redundancies, we think they’ll be slower to take on labour in the upturn as well.

Q: In November 2013 David Cameron said Help to Buy is proving a success, but do you think Help to Buy might lead to a housing bubble in some areas of the country?

I think we’ve seen the first signs of it, although it’s slightly blurred by the fact that the London housing market almost operates independently to the rest of the UK. But the simple answer is that, if you increase demand against the backdrop of supply side constraints then you have a much bigger impact on price than you do on output; you have a small expansion of supply, but an even bigger impact on price. And we think that describes the UK housing market.  So, consequently, we don’t see any sort of double digit boom in house prices, but we could see a scenario where you get high single digit growth in house prices very easily.

The Full Interview can be found in Access London Magazine - print or online.

Graeme Leach will be replaced by James Sproule, who joins the IoD from Accenture where for the past seven years he has led UK and Global Capital Markets research.