Bai­ley fol­lows Mi­caw­ber in the hope ‘some­thing will turn up’

The Daily Telegraph - Business - - Business - RUS­SELL LYNCH

Gover­nor An­drew Bai­ley is clearly tak­ing his Charles Dick­ens on hol­i­day this sum­mer, as there was more than a dash of Wilkins Mi­caw­ber-es­que op­ti­mism in the Bank of Eng­land’s lat­est fore­casts.

The David Cop­per­field clerk, whose catch­phrase was that “some­thing will turn up”, might have scrib­bled the fore­casts that saw a far shal­lower de­cline in growth this year, a smaller rise in un­em­ploy­ment and an econ­omy back to pre-pan­demic lev­els by the end of next year.

In fair­ness to the Bank, data such as re­tail sales has been stronger than it ex­pected in May, prompt­ing chief econ­o­mist Andy Hal­dane’s “so far, so V” com­ments in June.

But the past is no guide to fu­ture per­for­mance and in a week that has seen yet more job losses, the Bank’s rosier view on un­em­ploy­ment jarred.

The ex­pected peak in the job­less rate was cut to 7.5pc, and un­em­ploy­ment is fore­cast to drop al­most all the way back to pre-Covid lev­els of about 4pc by the end of 2022.

Many City econ­o­mists would bite your hand off for that kind of re­sult as of now. The Gov­ern­ment’s fur­lough scheme has al­ready be­gun to be wound down and will end com­pletely in Oc­to­ber, threat­en­ing mass culls.

Some sec­tors will take a per­sis­tent hit to de­mand, some have found more ef­fi­cient ways to work, and there is also a mis­match be­tween the skills of laid-off work­ers and those that hir­ing firms need – but the Bank has kept its

‘An abrupt tran­si­tion to WTO rules could scup­per the Bank’s pre­dic­tions of a 9pc bounce­back next year’

long-term es­ti­mate of the nat­u­ral rate of un­em­ploy­ment un­changed.

Thread­nee­dle Street’s com­ments that Covid-19 could hurt the job mar­ket harder “if it re­sults in sig­nif­i­cant longer-last­ing changes to the struc­ture of economies” feel like they should be in its cen­tral sce­nario rather than an out­ly­ing risk.

The Mon­e­tary Pol­icy Com­mit­tee also as­sumes an im­me­di­ate and or­derly move to a free trade agree­ment with the Euro­pean Union at the be­gin­ning of 2021. As that is the cur­rent stance of gov­ern­ment pol­icy, how­ever un­likely it seems, the Bank has lit­tle choice in this. But an abrupt tran­si­tion to World Trade Or­gan­i­sa­tion rules and the fric­tion that en­tails could well scup­per the Bank’s pre­dic­tions of a 9pc bounce­back for the econ­omy next year.

The Bank ad­mits that its own fore­casts are ham­strung by the un­know­able path of the virus. That means the down­side risks in its coloured fan charts are even more vo­lu­mi­nous than usual: they don’t in­clude an­other na­tional lock­down, or a sec­ond wave, but they do build in the risks of var­i­ous lo­calised re­stric­tions as and when the virus flares up again.

That said, if you re­ally have no idea what will hap­pen, why not be upbeat rather than risk talk­ing the econ­omy into a self-ful­fill­ing funk? Over­all, it was in­ter­est­ing that the fi­nan­cial mar­kets took the re­port bullishly.

The pound moved higher against the dol­lar as Bai­ley played down the prospect of neg­a­tive rates even in the act of putting it on the ta­ble, giv­ing him­self plenty of wrig­gle room for ac­tion later if needed.

But we can only hope the Bank still has such rea­son for rel­a­tive cheer in chilly Novem­ber.

Newspapers in English

Newspapers from UK

© PressReader. All rights reserved.