£150 BILLION SAVED
As Rishi Sunak reveals his budget, the Bank of England’s chief economist says we must stay positive. Andy Haldane tells Jim Armitage that he expects a robust bounceback
IT is, I’m told, a miracle. Andy Haldane, chief economist at the Bank of England, is not only on time for our Zoom interview, but he’s early. “This is extremely unusual by my standards,” he jokes. “Reliably unreliable, me.” Considering he’s near the top of one of the most Establishment organisations in Britain, Haldane is as self-effacing as they come. A working class lad from a council estate in Guiseley, Leeds, he’s now in charge of setting the economic forecasts used to make decisions that will make or break the British economy. Yet he’ll still blithely claim to be “no good at maths” or, as he says to me, “a really, really slow learner.” Tosh. Albeit charming tosh.
In fact, you can imagine him turning on the charm even during the numerous
The magnetic forces that powered London before Covid will return, people are desperate to socialise again
spats he had with the former boss at the Bank, Mark Carney.
It’s largely on his team’s analysis that the Bank has slashed interest rates to pretty much zero as we face the Covid economic crisis. It’s their predictions that have prompted the Bank to run up £900 billion of quantitative easing — better known as printing money or, as Haldane puts it, “throwing the kitchen sink at it”.
When we met last week, he flatly refused to discuss today’s Budget (“Rishi’s got a tough enough job as it is, he doesn’t want me offering advice from the sidelines”) but he will have been cheering more investment to correct the “fault-lines” in the economy. “Education, skills, infrastructure, innovation, investment, the whole levelling-up agenda” is what the country needs more of, he says. Now the Bank’s job is to match its policies to Sunak’s announcements.
Where Haldane will agree with the Chancellor is that the economy is set to bounce back soon. He’s warned against “chicken-licken” pessimism that the economic sky is going to fall down. So, what’s his view on the capital’s prospects of recovery from Covid? “You’ll have to search hard for a city that’s been harder hit,” he says. “But I do expect a pretty
robust bounceback. Will it recover the sort of pre-Covid heights quickly?” he asks rhetorically. “That depends how many people return to the office full time. I think it’s likely that, with more people working and spending locally, the return of growth might be a little bit chipped away in London.” Seeing my deflated look, he chirps up: “But listen, the magnetic forces that powered London before Covid will return, and they’ll return fast, Jim, because people are desperate to socialise and take part in cultural activities where London is the absolute Mecca.”
The Bank has been shut for the current lockdown. Even when it was open last year, few went into the office. Haldane has been working from home in Surrey with his wife, Emma Hardaker-Jones, HR director at Legal & General, three children and the dog. “It’s been OK in the grand scheme of things,” he says. “We’re the lucky ones because we can work from home.” That’s unlike the many people (he estimates one million) who’ve lost their jobs during Covid. If you’re young or a blue collar worker, you are far more likely to have been made unemployed, he says.
He worries hugely about the pandemic’s impact on inequality — between rich and poor, young and old. “Inequalities were already at their highest levels since late Victorian times, and had been getting worse even before Covid. It’s extremely likely that some, if not all, of those inequalities are likely to get worse.” That’s why, he says, it’s vital that those who have not lost their jobs or seen their income slashed should spend, spend, spend when the lockdowns end.
“The average household has racked up some sizeable savings during this crisis, maybe totalling £150 billion. I very much want as much of that to be spent [as possible] because that’s what creates the demand and employment for those who might have lost their jobs. That’s the trickle down mechanism I want — an inclusive recovery that helps those who’ve suffered most over the past 12 months.”
Covid’s disproportionate hit to London will take out some of the inequality with the North. But, he stresses, this is not the way of dealing with London-centric bias. “That’s levelling down, which is very much not the right recipe,” he says. Overwhelmingly, he is the cheerleader of economic optimism. In fact, he was criticised in the middle of last year for declaring that the country was set for a V-shaped recovery, bouncing back rapidly from the collapse in growth seen from March and April. It put him at odds with business leaders and City economists and he was soon proved wrong, as the early recovery was smashed by the second wave of the virus. He says he taken out of context. The full quote, he says, was “so far, so V”. “I was not predicting V would last forever hereafter. I was nowhere near that brave!” He adds: “I’m not feeling particularly brave right now but I am a lot more confident than I was back then.” Vaccines, he says, are the gamechanger which wasn’t there when he was giving us the Vs last year.
He’s a major advocate of the “nothing to fear but fear itself” school of governing, which is why he’s so resolutely upbeat. But doesn’t that risk the Bank being accused of the kind of Boris Johnson boosterism that makes the public suspicious when it doesn’t come true?
Quite the contrary, he says. He’s been cross over the past year that the media, economists, the Government and businesses have been too negative for much of the crisis. “Pessimism can be contagious. But so too can optimism. In both cases it can be self-fulfilling. So, there was a risk at times of us talking ourselves into recession... we can talk ourselves to a significant degree into a recovery by creating a sense of optimism about the future.”
If someone running a business keeps hearing the economy’s picking up, they’re more likely to hire a new employee. People will spend more on themselves, too, creating demand and jobs to spur the economy back into life. Searching for one of the metaphors he loves to use, he says his role is to communicate such concepts: “It’s all about creating your narrative. A story about the sun being out tomorrow is crucial for improving the weather today.”
Sunak’s Budget contained billions more in grants and help to firms struggling from the impact of the virus on their takings. Measures like this have combined with the Bank’s super-low interest rates policy to spark concerns that the economy may actually overheat, sending inflation into orbit. If inflation does start to rise, Haldane and his colleagues will have to put up interest rates to keep a lid on it. That, in turn, will make it more expensive for the country to keep up the interest repayments on the near-£2 trillion of debt we have built up due largely to Covid.
Stock markets have been on a rollercoaster as a result of such worries.
So, the markets are scared of inflation. Is Haldane? “Yep. It does concern me,” he says. “At a time when debts have been
Inequalities were already at their highest levels since late Victorian times before Covid and have been getting worse
built up, rightly, to tide us over the cashflow crisis of Covid, the very last thing you want is a nasty inflation surprise.”
That approach seems to be at odds with some on the Bank’s Monetary Policy Committee, which sets the cost of borrowing. Silvana Tenreyro, among others, have proposed “negative interest rates”, where we would effectively be paying the bank to look after our money. They argue this would spur people into spending their savings and boost the economy; never mind inflation. Haldane begs to differ. “You can never speak of inflation being dead; it’s only ever sleeping. And therefore to think you’ve somehow tamed the beast forever would be fanciful.”
On that Lord of the Rings image, somewhere off camera another untamed beast is barking madly at the front door. The Haldanes’ dog is going berserk. The Standard’s photographer has arrived. Unlike his subject, he’s a stickler for punctuality.