BANK CHIEF IN GRIM WARNING
EXCLUSIVE: Lifting lockdown then slamming brakes on again would damage economy even more, says new Bank of England governor
THe governor of the Bank of england today issues a stark warning that Britain should be cautious about lifting the coronavirus lockdown too early.
In his first interview since taking the top job, Andrew Bailey told the Daily Mail that a premature end to the restrictions could cause a severe loss of confidence and inflict further damage on the economy.
‘I think we have to be careful when thinking about human psychology,’ he said. ‘If we had a lifting and then [lockdown] came back again, I think that would damage people’s confidence very severely.
‘If we have a false start... that would have potentially quite difficult effects I think.’
The new governor’s stern intervention comes at a time of increasingly heated debate over how soon the lockdown can be lifted. ‘Hawks’ advocating an early easing of restrictions point to the huge costs to the economy of remaining in a deep freeze.
But on the other side, ‘doves’ argue that relaxing the constraints too early would be reckless and could lead to a devastating second wave of infection which would hit an enfeebled economy even harder.
Mr Bailey’s stance puts him at odds with one of his predecessors, Mervyn King, who was at the helm of the Bank during the financial crisis in 2008.
Lord King said recently that young people would question why their futures were being put at stake ‘ to help prolong the life expectancy of older people’ and that they might rebel if curbs are in place for too long.
But Mr Bailey, who took over as governor in the middle of last month, said: ‘I would apply slight caution to the Mervyn King line, which I have read and seen when he has been on television.’
He added that before the lockdown is lifted, employers need to ensure that their staff are not being put at risk in offices or when travelling to work.
Mr Bailey said: ‘As an employer – and we have this at the Bank of england – you have to be able to answer the questions for your staff: is it safe to come to work?
‘And what constitutes being safe, not just for people when they are in the building but travelling to and from the building?’ The governor is splitting his time between working at the Bank on Threadneedle Street in the heart of the City and his family home in Kent.
‘It is weird going in the building with almost nobody in it,’ he said. ‘Most of our operations are running from people’s homes, including some very big and novel ones.’
These include a multi- billion pound scheme to lend money to large businesses.
The governor said that not enough finance has got through to small firms under the bailout loan programme set up by Chancellor Rishi Sunak.
Only around £2billion has been lent to UK firms under the Covid Business Interruption Loan scheme – far less than in countries such as the US, Switzerland and Germany. Mr Bailey said there are a number of ‘bottlenecks’ in the system.
These have been created because the banks are finding it hard to deal with a huge surge in demand for loans at a time when many of their own staff are sick or self-isolating, he said.
Lenders are also struggling to assess how big a risk there is that small firms will not be able to repay any loans they are given.
Mr Bailey said: ‘This gums up the operational side. It is clearly not satisfactory and [ the system] clearly needs to be un-gummed.
‘I gee up the banks regularly. The Chancellor and I are both extremely keen that credit flows to firms.’
He added that he is watching closely to make sure the banks do not repeat the mistakes they made in the meltdown of 2008.
Following that crisis, relations soured between many firms and the banks, who were accused of exploiting their customers’ misery by charging them high fees or seizing their assets at knockdown prices.
‘I know from a painful past that lending to small firms is not easy,’ he said. ‘I am very keen, very sensitive that we don’t get back into a situation we are still trying to clear up after the last crisis.
‘The last thing we need is a re-run of those problems.’
The governor said UK banks now have much stronger balance sheets than they did in the run-up to the financial crisis.
But he admitted they had not been stress tested to see if they could withstand a deadly pandemic like Covid-19.
He said that the Bank would report on how resilient lenders are next month. He conceded that if the pandemic is worse than expected, they could buckle under the strain.
‘Yes, there is a breaking point in any system, we can’t deny that,’ Mr Bailey added.
‘There is a breaking point in any system’ I think we have to be careful when thinking about human psychology