BOE avoids repeat of 2008 schism for now
Split widens on Britain’s post-covid economic prospects
LONDON: Bank of England (BOE) officials may be increasingly diverging on the prospects for Britain’s post-covid economy, but that disagreement hasn’t yet become a schism on how to respond.
A widening split over the speed of the recovery from the country’s worst growth shock in living memory looks unlikely to prompt much of a debate over the monetary-policy response for now. That’s despite chief economist Andy Haldane’s dissenting vote against expanding bond purchases in June.
The sense of alignment is very different to the 2008 global financial crisis, when officials led by then-governor Mervyn King clashed robustly both on the economic outlook and the response to it, even casting simultaneous votes to raise and cut interest rates. As the turmoil deepened, the disagreement played out in a public spat that left the institution bruised.
By contrast, relative unity on the Monetary Policy Committee (MPC) this time round may provide more certainty to investors that officials are ready to keep stimulus taps running for as long the economy needs it. By helping to drive down bond yields, the Boe’s actions are also reassuring for the government, which has ramped up borrowing to fund emergency spending.
“There seems to be a division between different members on how the recovery is progressing,” Nomura International Plc economist George Buckley said. “But I suspect there is probably not going to be much division when it comes to the next vote.”
Under governor Andrew Bailey, the BOE is already buying an additional £300bil (Us$393bil) of bonds as part of its emergency virus response, and economists expect it to top that up by another £50bil before the end of the year.
Policy makers are expected to stand pat on both interest rates and asset purchases when they announces their next decision on Aug 6. More interesting will be the bank’s updated outlook for the economy, which may offer clues on the likelihood of further stimulus.
Some disagreement among the members of the MPC is inevitable, given they are dealing with historically elevated levels of uncertainty.
One gauge tracked by economists at the BOE – forecaster disagreement – surged almost 2,000% from January to its peak.
But the variations are relatively nuanced, focused on what time horizon to gauge the economy’s prospects.
Haldane has emphasised high-frequency data such as payment transactions and Google searches, which he says are broadly corroborated by official GDP figures. He describes the recovery as “so far, so V.”