No sign of certainty at the Bank of England

Just like the Government, the senior figures in Threadneedle Street are sending mixed messages

More austerity or less austerity? Hard Brexit or soft? Prosperity and jobs first, or immigration and British sovereignty? In a government deprived of its majority, it has seemingly become impossible to agree on almost anything beyond the mundane.

It is all very well for Philip Hammond, the Chancellor, to describe reports of a falling out with No 10 as “popular mythology... peddled by the media”, but who is he kidding? Serious divisions, on Brexit and much else besides, are opening up all over the place, leaving a sense of chaotic drift and open season over the nation’s future. I’d say “get a grip”, only political paralysis is the all too inevitable consequence of minority government.

So confused is the picture, that in Brussels, officials openly wonder what it is the UK is still trying to achieve in its Brexit negotiations; already compromised plans for fiscal consolidation have similarly been thrown back into the melting pot.

With everything else up in the air, you might at least expect some certainty from the technocrats at the Bank of England, but even they seem to have succumbed to the same sense of national indecision. This week, Mark Carney, the Bank Governor, cautioned against any increase in interest rates, given the backdrop of weaker consumer spending and “anaemic” wage growth, only a day later to find himself almost directly contradicted by Andy Haldane, the Bank’s chief economist.

Haldane, by contrast, thought some withdrawal of the extra monetary stimulus applied after Britain’s vote for Brexit might be appropriate later this year. Known previously for his ultra-dovish “print, baby, print” views, Mr Haldane overnight seemed to have been converted into a hawk.

Even taking account of the fact that the Bank adopts a collegiate approach to policy in which differences of opinion are encouraged, it seemed like a deliberate rebuke, if not an outright challenge to the Governor’s authority.

Knowing Haldane a little, I doubt he actually meant it that way, and the difference with Carney is in any case more marginal than made out. Haldane is a bloody-minded contrarian who revels in his reputation as a loose cannon in the otherwise consensually driven world of central banking. Under Carney’s predecessor as Governor, Mervyn King, Mr Haldane served the purpose of court jester, saying the sort of thing the Governor no doubt thought but dared not or could not utter himself.

All the same, Haldane’s apparent Damascene conversion to tighter money is quite a moment. That two such apparently opposing views could co-exist on the Bank of England’s Monetary Policy Committee is evidence of the same uncertainty about the future as afflicts the nation as a whole. The fact is that the Bank is as clueless about what’s really going on as the rest of us. The economic data is all over the place. And even if it wasn’t, it wouldn’t be clear how policy should respond. One day it’s squeezed wages which makes the headlines, suggesting a fall-off in consumption; the next, an unexpected improvement in the public finances, indicative of a more buoyant economy than thought. As with the political sphere, the economic has rarely been so filled with surprises. Recent events have made everyone, including the Bank of England, much more cognisant of the futility of prediction.

But the difference is also symbolic of a wider crisis of legitimacy among central banks, dinosaurs all, ill adapted to a fast-changing world. In its conception, the idea of an independent Bank of England was that it would help stabilise the economy by ending Britain’s historic propensity to inflationary booms and busts. As with so much else, however, the economy obeys the waterbed principle; press down on one problem and another rises up somewhere else.

The Bank did indeed seem to get on top of inflation, but the so-called “Great Moderation” still ended in an almighty bust. Though new functions have since been bolted on to help the Bank fight financial instability alongside inflation, it is already obvious that the super-accommodative monetary policy used to counter the post-lehman stagnation is only incubating new instabilities for the future. Thus do today’s solutions lead inevitably to tomorrow’s disasters.

Set against these worries, minor differences between Carney and Haldane over the immediate course of interest rates seem somewhat trivial. Yet they speak to the same phenomenon of policy stumbling around in the dark, unsure of how to respond to today’s changed world, and perhaps unable to in an economy driven more by global forces beyond their control than the comparatively simple, domestically determined economic variables of the past.

Strangely, none of this means the model is under any kind of obvious threat. It still suits the politicians to outsource their interest rate policy. It’s one fewer thing to be blamed for, and besides, they know the markets would punish them if they thought central bank independence was at serious risk. Even Jeremy Corbyn wouldn’t dare go there.