The Guardian reports on comments from Andy Haldane, Chief economist at the Bank of England, this morning, noting:
British families are ready to fuel a rapid return to prosperity with a multibillion pound spending spree, according to a senior Bank of England policymaker.
With the vaccine rollout protecting more than 13 million of the most vulnerable people, the BoE's Andy Haldane said the economy was about to turn “a decisive corner with enormous amounts of pent-up financial energy waiting to be released, like a coiled spring”.
Echoing comments made by BoE governor Andrew Bailey last weekend, Haldane — the Bank's chief economist — said most people were desperate to socialise again and spend money on going out for meals.
Three thoughts.
First, Haldane has clearly noted none of the lessons of ‘eat out to help out'. This country remains a very long way from being safe from another wave of Covid. It seems Haldane shares the Sunak approach of ‘bring it on'.
Second, this is the view of the financial elite. Haldane, and almost certainly everyone he knows, has had a very good crisis, economically speaking. Their incomes have been secure. They were already comfortable. Their spending has been cut. They may be raring to spend from a position of considerable economic security. But Haldane is being foolish to extrapolate his good fortune.
That is because, third, much of Britain is not raring to go. They have suffered massive loss of income. They have debts. Those debts are at present unaffordable. If they have their own businesses they do not at present know if they will survive. And for those who have lived through such stress of course the desire to socialise will be strong, but so too will the caution be overwhelming. They are very unlikely to be spending as if money is going out of fashion any time soon.
Haldane has called almost everything on this crisis wrong, right from the outset, when it was only ever going to be a temporary V shaped blip in his view. Well it wasn't. It's already delivered a loss of 9.9% in GDP, with long term losses likely to be more significant, only compounded by Brexit.
I would suggest that there are actually some who, despite their financial good fortunes, have had very bad Covid crises. In economics, Haldane is near top of that list.
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Here’s my two pennys’ worth for what it matters.
A consequence of allowing the Bank of England to give the impression it’s a semi-distant part of government is to effectively give it its own media outlet or megaphone.
How different is it say than Fox News in the United States that’s always ready to give a heavily biased slant on reality?
For example, you can bet that Fox News will not be be pointing that last month during the Capitol riot Mike Pence had an aide within him carrying the “nuclear button” equipment!
You can also bet they won’t be saying it’s therefore childishly irresponsible for Republican Party politicians in Congress to make light of the riot and the ensuing impeachment trial of Donald Trump.
https://www.independent.co.uk/news/world/americas/mike-pence-nuclear-football-capitol-riots-impeachment-b1801275.html#comments
It doesn’t make sense to me that as far as economic matters are concerned there are two “pulpits” in the UK government. The nation desperately needs to pull together in current circumstances and here Bank of England officials are being allowed to add additional stress through ad hoc comments such as the nation will quickly return to “over-heating” and the government must “balance its books” as quickly as possible. This is not helpful even if this is only government slyly leaking its intent and attempting to give that intent merit or cudos!
Agreed
I suppose upon further reflection I would argue we ought to be more aware that politicians pay a great deal of attention to image perception management given that it ultimately affects votes. So Gordon Brown’s decision to enhance the BoE’s “independence” ought to be viewed in this light. Any decision by government (of whatever hue) to “deflate” or “inflate” the economy can be “managed” from a perception viewpoint as really one that the BoE was advising.
Maybe it’s more in hope than expectation. A sort of ‘Field of Dreams’ scenario, i.e. ‘Build it and they will come’. Or in this case ‘Tell ’em there will be spending and they will spend’.
I have no confidence in this government’s handling of this and my view is that, once again, they will ease lockdown too early which will necessitate another lockdown in the near future and they will impose that lockdown too late. And the whole cycle will start again.
Craig
The levels of understanding, awareness and ignorance in this country are truly astounding, and this runs through all levels af society. Andy Haldane is, I suppose, just playing his part in all of it.
However, it is remarkable that one important factor has been overlooked.
I refer to the matter of the overall state of the UK economy before the Covid-19 pandemic struck. i can do no better than refer to this posting by the excellent Prof. Prem Sikka thirteen months ago, at the start of 2020.
https://leftfootforward.org/2020/01/this-is-the-state-of-our-economy-after-a-decade-of-tory-rule/
The idea that 2020 would be a bad year for the economy was already on the cards. In the end, with no thanks to Covid-19,it was just a matter of degree. The idea that, in what is now a low-wage economy, there is a massive, pent-up wave of demand, waiting in the wings to ride to the rescue, is surely a little optimistic, isn’t it?
Yes
The better off tend to be older. The older are more cautious. Travel companies are trying to use one of the oldest tricks in the sales book “only one left” to create demand. So even there the data is questionable. Where else are the crumblies going to spend? New patterns of expenditure hardened over what will be at least 16 months of lockdown will not shift easily.
I think you are right here Alan as a not rich crumbly I have no intention of going on any kind of spending spree & certainly not until both my vulnerable wife & myself have had both doses & they have taken effect. We have not been able to save as we are at the mercy of expensive supermarket deliveries. You also have to factor in the bills associated with cold weather & confinement at home.
Richard, is Andy Haldane commenting from a personal perspective, or is it an official BoE view? If the latter, then regardless of how distant from government the BoE appears, when it’s actually a part of government, then his viewpoint must be also the government viewpoint. Opposition in Parliament should question this.
I also think, and it’s only an opinion, that there are a lot of younger people who are still taking on debt and spending online, regardless of the consequences. I don’t know how much impact this has on the overall spending of the country but my concern with this is a false dawn of recovery, with a debt default problem pushed further down the road.
Middle aged and older people are, I feel, being more cautious and trying to save/pay down debts.
Remember the BoE is officially independent
That’s crap, of course, but it’s the official line
So the Opposition cannot argue
[…] By Richard Murphy, a chartered accountant and a political economist. He has been described by the Guardian newspaper as an “anti-poverty campaigner and tax expert”. He is Professor of Practice in International Political Economy at City University, London and Director of Tax Research UK. He is a non-executive director of Cambridge Econometrics. He is a member of the Progressive Economy Forum. Originally published at Tax Research UK […]
The truth is that none of us know what the future holds (although personally, I incline towards a less bullish view than Andy Haldane). So, why give this speech? The sensible speech to give would have been to observe that (a) there is some pent up demand that will be released although the time scale is unclear and will depend on people feeling safe (b) some people who have lost income over the last year will spend a long time rebuilding their personal balance sheets and not raise spending once lock down ends (c) there maybe long term behavioural changes in saving and consumption that we have yet to appreciate. So, the Bank stands ready to conduct alter monetary policy as circumstances change.
I suspect the reason for “cheerleading” is career enhancement. Bailey’s term as governor ends in 2028; he will be 68 and won’t be reappointed. Indeed, his past at the FCA and “events” might mean he does not get that far. Andy Haldane is 54 and ingratiating himself with his political masters ready for a pop at the top job.
I entirely agree
@ Clive Parry
In the mist covered isle of Mugland oracles were still much in demand!
https://en.wikipedia.org/wiki/Oracle
But Andy Haldane has been one of the good guys for a long time. Much more open to a wide range of ideas, including Mazzucato and MMT than his colleagues. And he may be possibly be right, I’m not going to behave that way but I know others who are raring to.
He’s been a more independent voice than almost anyone else at the BoE so to accuse him of ‘ingratiating himself’ isn’t warranted.
People change
Haldane has
And when the facts change I reserve the right to change my mind
I have on Haldane
Going out for meals, eh? To restaurants which–if they’re lucky to have survived thus far–are going to be struggling to get the fresh foods they need to maintain their menus?
Good luck–if they serve seafood (as the UK’s seafood industry has more or less collapsed already), or fresh vegetables and fruit and other perishable ingredients that originate in the EU. Ingredients which they used to get delivered daily–at an affordable cost. And no longer can.
Good grief. What planet are these Bank of England spokespeople on? To some extent, Covid’s disruption of the economy couldn’t be helped. Brexit, however, is another story. Ignoring Brexit’s ever-widening impact, and refusing to call those who promoted it to account, displays ostrich-like behaviour that is pretty unbelievable, really.
Sorry for slighting the poor ostrich.
As Clive says no one knows what will happen. There may be an uptick, it may be flat. It is unlikely to be down. The only reason to make such a speech is to encourage the spending the Government wants and needs to boost the economy. The masters of spin and snake oil sales will want the public to spend. Whether this should be the role of the “independent” BOE is up for debate. Personally I think there will be an increase in spending. Younger people with something to spend will want to go out after months of being cooped up and unable to meet their friends. Others may well wish to go on a summer holiday if they can. As to whether it will be the coiled spring? Maybe not.
The Guardian’s Phillip Inman has a more measures and sceptical view: https://www.theguardian.com/business/2021/feb/13/talk-of-post-covid-spending-spree-shows-cut-off-bank-of-england
We’re missing a trick here if the 1694 private joint-stock Bank of England (since nationalised) was a franchisee of government, and commercial banks are franchisees of the former, then the questions are how much subsidiarity do you need as a nation and/or for what purposes. For example concerning purpose, do you have to franchise out the issue of house mortgages a matter I would remind you led to the GFC, and in the UK in large part because one franchissee, the BoE, took its eye off the ball?
That is a good question, only matched by the question as to how much the credit risk can also be outsourced
One further comment I bet the rich can’t get over their luck to have got a franchise in 1694 which gave them 8% interest on their money to create money for the less rich to pay their taxes. To this day their luck continues to hold after a fashion especially with QE.
As a now very financially well off ‘near-crumbly’ due to inheritance and comfortably ensconced on 100% pay now wfh permanently, I have absolutely no intention of indulging in some kind of spending spree in what (if any, as Jan F points out) remains of the hospitality sector until Covid is sorted out.
That means I’ll need both my jabs to take effect, anti vaxxer nonsense defeated by the government so virtually everyone has been vaccinated, and proper Track and Trace put in place via the NHS instead of privatised incompetents like Harding.
As with everything else in the future of the UK, I feel pessimistic. I’m not listening to the endless ‘spin’ re the UK’s vaccination program; chest beating vaccine nationalism is pointless, since even if we get on top of it here, it needs to be contained worldwide before we can contemplate a return to pre-pandemic levels of international movement and interaction.