Bank of England needs a reboot: Much of its work has a high reputation, but it is difficult to know what it stands for, says ALEX BRUMMER
When the Bank of England gained its independence in 1997, the great ambition of backers Ed Balls and Gordon Brown was that it would become an economic and monetary powerhouse, as respected as the German Bundesbank.
In the age of the European Central Bank (ECB), the Bundesbank lives in the shadows, but it nevertheless remains the voice of sound money.
No one disputes where German monetary policy stands, even if it can be drowned out by other ECB voices.
Pointing the way: Governor Andrew Bailey’s well-intentioned economic interventions were welcome at the start of the pandemic
The British central bank did become an economic force and much of its work has a high reputation. But it is difficult to know what it stands for.
As an inflation-fighting machine, it lost perspective post the financial crisis and in the pandemic. It continued to sustain emergency interest rates and to print money after inflation took off in 2021, in spite of warnings from then chief economist Andy Haldane.
Governor Andrew Bailey’s well-intentioned economic interventions were welcome at the start of the pandemic. It was Bailey who recognised first that there needed to be a guarantee scheme for businesses to prevent long-term scarring to commerce. The mission creep into protecting jobs and business distorted decision making. The Bank’s network of agents, feeding intelligence from the regions to the interest rate-setting Monetary Policy Committee (MPC), is a force for good.
Nevertheless, when the Bank does its big Monetary Policy Report forecasts, as it last did in November, it appears to take minimal notice of the real economy and is driven by mechanical models and forecasts. It was in November that it made its alarming, headline-grabbing prediction that a tough squeeze on real incomes would lead to a two-year recession – the longest in history.
It may yet be proved right (one hopes not) but there were all manner of real world events and data sets to challenge its assertion. No one quite understands how a ‘full employment’ recession works. What is undoubtedly true is that private sector employers, desperately anxious to keep hold of skilled colleagues, find ways of paying them better in an inflationary environment. Devices such as one-off payments and bonuses mean spending power is maintained.
Meanwhile, surveys of footfall on our high streets and in retail parks showed that people were going to shops.
Instead of retreating, as the Bank has been forecasting, the economy actually expanded in November by 0.1 per cent.
Judging from the stonking sales data from the biggest grocers and fashion chains over Christmas, there is no technical reason (other than the down days of the holiday period) to think we should be gloomy about consumer spending or the perky services sector.
The worry is that the Bank’s talk of recession reinforces negative thinking among consumers and enterprise. There is good reason to think it is already impacting business investment.
This week there was a whinge from Bailey, reinforced by his counterpart at the US Federal Reserve, Jay Powell, that because central banks now have to deal with all kinds of societal issues – ranging from climate change to inequality – it could distract from the core job of lowering prices. Central banks should really be asking how did they get inflation so wrong and did they ever think about the consequences of printing excess money for so long?
Should they be rethinking their whole approach to forecasting and let the more practical world of the regional agents and real time data impinge more on thinking?
And has the ‘group think’ of the Bank and former Treasury insiders on the MPC led to shoddy decision making?
These are issues which the Court (the Bank’s non-executive board) and the Treasury Select Committee should interrogate.
Channel hopping
ITV’s launch of streaming service ITVX and a £160m uplift for the content budget for 2023 was greeted with a huge raspberry by the stock market in March last year. The shares were marked down by 18 per cent. Chief executive Carolyn McCall stuck to her guns and the streaming service, combining ITV Hub, ITV Hub+ and Britbox UK, is off to a flying start.
ITVX lifted streaming hours by 55 per cent and is attracting advertisers, in spite of industry concerns that recession might deal a big blow to commercials. It may not be Netflix, with its multi-billion production budgets, but British viewers know what they like.
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