The most striking point about the Bank of England’s view on the economy is not the dire warning about the slump this year, but the Governor’s robust optimism.
Andrew Bailey, who took over as the top man in Threadneedle Street only eight short weeks ago, has injected a very welcome dose of hope into an atmosphere of almost unrelenting despair.
We have heard from a panoply of august institutions – including the International Monetary Fund – of the blood-curdling damage being done. The consensus is we can kiss goodbye to our hopes of nice lives because we’re in for the worst economic downturn for generations.
Andrew Bailey, who took over as the top man in Threadneedle Street only eight short weeks ago, has injected a very welcome dose of hope into an atmosphere of almost unrelenting despair
Mr Bailey is hardly a Pollyanna. The Bank is suggesting we will suffer the sharpest fall for three centuries – but the big difference is that the Governor also thinks we will be quick to bounce back.
To which I say: thank you, Governor, for offering a ray of light at the end of a very dark tunnel.
The Bank expects the economy will drop by 14 per cent this year but then to jump right back in 2021 with a 15 per cent rise.
The unemployment figures, which are soaring, could be back down close to ultra-low levels by 2022. In short, Mr Bailey says our recovery could be quicker than in a normal recession and that the ‘scarring’ or long-term economic harm could be relatively small.
If we can look forward to prosperity being restored, it would be a huge fillip to the morale of the entire nation.
So naturally, we would love to believe him when he suggests the economy can spring back so rapidly. But should we? Or is he, as his critics are already hinting, peddling a happy delusion?
The unflappable new governor is right to see solid reasons for optimism. Conventional recessions – including the financial crisis – are usually someone’s fault, whether that be reckless bankers or misguided socialist politicians. If rogues like these get their tentacles into economies, it can take many years to put things right
The unflappable new governor is right to see solid reasons for optimism. Conventional recessions – including the financial crisis – are usually someone’s fault, whether that be reckless bankers or misguided socialist politicians. If rogues like these get their tentacles into economies, it can take many years to put things right.
But this downturn was not caused by inherent flaws in our system. Indeed, pre-pandemic, our economy was fundamentally sound. With hard work, determination and flexibility it can and will spring back to life.
One major plus point is that the banking system is in much better shape than it was in the run up to the credit crunch. Lenders are in a good position to support businesses and individuals through the dark days ahead. The Government and the Bank have propped up the economy with billions of pounds of support and stand ready to do more. That could be problematic if they do not unwind the rescue packages in a responsible way, but the actions they have taken were the right emergency measures.
Mr Bailey’s critics, however, are already suggesting that his views are too cheery. It’s true that his scenario depends on a number of assumptions, including a successful lifting of the lockdown.
Mr Bailey’s critics, however, are already suggesting that his views are too cheery. It’s true that his scenario depends on a number of assumptions, including a successful lifting of the lockdown
Even after curbs are eased, some sectors could suffer lingering harm if people are afraid to travel and socialise again.
Yet the pandemic has also shown how resilient, dogged and flexible our businessmen and women are. Every day I hear of pubs doing food delivery, fashion manufacturers making scrubs, defence engineers producing ventilators. Our entrepreneurial spirit is irrepressible.
A lot could go wrong, as the Governor would be the first to admit.
But, having worked at the Bank since 1985, this is a man who has earned a right to his views.
The Bank uses a highly trained network of ‘agents’ in every part of the UK who regularly supply top officials with detailed information about businesses and consumers.
Andrew Bailey is not a man to raise people’s hopes lightly – so when he tells us we can and will find our way back to economic health, we should heed his words.
His thinking is summed up in one of the Bank’s charts, which traces the sharp V-shape of our descent and subsequent rise.
In human terms, what the ‘V’ graph tells us is that we can work, invest and spend our way out to economic victory over the virus, if only we have the will to do it.
What a heartening message on this VE Day.