Bank of England Governor ‘concerned’ about inflation persistence
Time and again it tells us how the UK economy is going to perform over the next year or two, only for the opposite to happen.
Bailey’s biggest error was in 2021 when he downplayed inflation as “transitory”. Heaps of experts and analysts poured derision on his breezy dismissal.
Inflation then rocketed while the dear old BoE struggled to keep up with events it had embarrassingly failed to predict.
Bailey hasn’t seen a curve without falling behind it. After failing to forecast the impending disaster, he has overcompensated by belatedly piling on the gloom even as the outlook brightens.
In November, Bailey warned the UK faced the longest recession in 100 years, lasting to the middle of 2024.
Yesterday, he junked February’s prediction the economy would shrink by 0.5 percent this year and forecast growth of 0.25 percent instead.
In November the BoE predicted unemployment would peak at 6.5 percent, yesterday it revised that down to 4.5 percent. In a similar vein, in February it said inflation would fall to 3.9 percent by the end of the year, now it’s guessing 5.1 percent.
Forecasting is difficult, I get that. Bailey and the BoE are under intense pressure. Everybody is looking for someone to blame.
But all too often the truth is staring at them and they still miss it. I believe it made another mistake yesterday, hiking rates for the 12th time in a row.
Driving up borrowing costs to the highest level since 2008 will do nothing to cut key inflation drivers such as energy and imported food.
The aim is to squeeze consumers and businesses so they have less money to spend on goods and services, reducing demand and eventually, prices.
In other words, the only way it can defeat inflation is to make all of us poorer. What a strategy!
BoE confusion and incompetence under Bailey is nothing new. Last October, I called it the Michael Fish of forecasters, but now I realise that’s unfair.
BBC weatherman Fish famously claimed the UK would avoid a devastating hurricane that went on to wreck large parts of southern England in 1987.
I owe him an apology. Mr Fish had the tricky job of forecasting the unpredictable British weather for years, and mostly got it right. Whereas the BoE has called the economic weather wrong again and again.
Fish may have sunk Kent, but Bailey has left the UK economy under water.
I didn’t coin the Michael Fish comparison. That was the BoE’s former chief economist Andy Haldane in 2017, who called its failure to predict the 2008 financial crisis the profession’s “Michael Fish moment” .
Haldane said a series of forecasting errors before and after the banking crash had brought the BoE’s reputation into question.
That was more than 15 years ago. Nothing has changed.
Bailey is unwilling to own up to his mistakes. Russia and the pandemic are to blame for today’s inflationary mess, not him.
Nobody is blaming him for actual inflation, they’re just trying to get him to take responsibility for failing to take action in time.
Fat chance of that.
Yet Bailey is all too willing to criticise his own colleagues, throwing his chief economist Huw Pill under the bus yesterday.
Last month, Pill made the “tone deaf” comment that workers must “accept that they’re worse off” and stop pushing for a pay rise, to prevent the economy overheating.
Yesterday, Bailey said: “I don’t think Huw’s choice of words [were] right to be honest”, before adding: “And I think he would agree with me.”
I’d like to know what Pill thinks of Bailey’s choice of words.
Bailey isn’t the only BoE governor to get his predictions wrong. Predecessor Mark Carney was labelled an “unreliable boyfriend”, for continuously playing ‘will-he-won’t-he’ games over interest rate hikes.
Yesterday, Bailey confessed that “The economy has turned out to be more resilient than we expected it to be.”
It has to be resilient to survive everything the BoE has thrown at it over the years.
The problem is that millions of ordinary people are paying a high price for BoE incompetence. Now they’re the ones I feel really sorry for.
Source: Read Full Article