Employment expert to rule on interest rates

Gordon Brown's desire to keep Britain's jobless rate on a downward trend was highlighted yesterday when he chose one of the country's leading labour market experts to join the Bank of England's interest-rate setting body.

With the number of people out of work and claiming benefit set to tumble below the 1m mark over the next year, the chancellor announced that Professor Steve Nickell was moving onto the bank's nine-strong monetary policy committee.

Prof Nickell, co-author of one of the key textbooks on the link between inflation and unemployment, has been hand-picked to advise on how low the jobless rate can go without stoking up price pressure in the economy.

He will replace the Dutch Professor Willem Buiter on the MPC.

Prof Buiter, one of the four external members of the committee, is stepping down at the end of his three-year term to become chief economist at the European Bank for Reconstruction and Development.

In a letter to the chancellor, he said the independence of external members was best preserved by serving no more than one term.

"Having reached the conclusion that, as a matter of principle, external members should be appointed for a single term only, I cannot in good faith claim special circumstances for myself," said Prof Buiter, describing his time on the MPC as the high point of his professional career.

Prof Nickell, 55, has a chair at the London School of Economics, which he will retain. He will work at the bank four days a week, taking a pro-rata share of the £128,000 a year salary.
He is a colleague of Richard Layard, academic mastermind of the new deal, the government's policy for getting young people off welfare and into work. He is also associated with the concept of the Nairu - the non-accelerating rate of unemployment - which contends that there are limits to which you can use monetary and fiscal policy to stimulate demand without igniting inflation.

With inflation remaining subdued despite rapidly falling unemployment, Prof Nickell's insights into the workings of the labour market will be particularly valuable, said observers.

Nickell's other areas of interest include productivity growth and competition, both preoccupations of the chancellor.

Prof Buiter has been a colourful member of the committee, noted for his sense of humour, quick temper and activist approach which has seen him vote for a rate rise one month and for a cut the next.

The three-year term of Charles Goodhart, 63, a colleague of Prof Nickell's at the LSE, also ends in May but the treasury refused to discuss whether he would be reappointed.