BoE Chief Economist warns of ‘Michael Fish’ moment
Andy Haldane, the Chief Economist at the Bank of England, has warned the financial profession that they are facing a ‘Michael Fish’ moment with regards to the likely impact of Brexit.
Michael Fish was infamous for incorrectly dismissing fears that the UK was facing a large hurricane in 1987 – and the subsequent storm is now legendary. In the same way, Mr Haldane has warned economists that they are remaining blind to the risks of Brexit and have done so since the financial crisis of 2008.
Markets In False Sense Of Security
Speaking at a gathering of The Institute for Government, he explained the central banks issued similar types of reporting before the last financial crisis – suggesting that things were a little ‘windy’ in the sub-prime markets, but that no hurricane was imminent.
He also said that financial forecasters – including the Bank of England – had been ‘too gloomy’ in predicting an immediate economic crash after the EU referendum vote, which was now lulling the markets into a false sense of security.
He acknowledged that the subsequent slowdown was more gradual than predicted, adding that economics as a profession was experiencing a degree of crisis, as it did in the ‘thirties during the Great Depression. That very period in time led to a total overhaul of economic forecasting.
He did reassure the audience, however, that the consumer credit boom should not be a cause for concern, explaining that the trend for households to borrow heavily to fund big-ticket purchases was actually a sign of consumer optimism. Consumer credit jumped in November by 10pc compared to the previous year. He added that household debt ratios were historically high, but were lowering and already down by 20pc since their pre-crisis high point.
Haldane Predicts Low Interest Rates
Mr Haldane had praise for the government’s much-vaunted industrial strategy as a powerful means of raising living standards and boosting UK productivity, although he signalled a warning for rising inflation in 2017.
He said that interest rates would stay low in the foreseeable future, which would mitigate concerns around the servicing of debt – but called on the industry to watch affordability carefully.
The Chief Economist’s major takeaway message, however, related to Britain’s productivity gap. He spoke of the country’s pressing need to improve its productivity levels, to grow wages, GDP and living standards, noting that even firms in the most high-tech of industries were falling behind on a global scale.
Mr Haldane’s solutions to the crisis? A strong government economic strategy, better spending on infrastructure and better education to create a skilled workforce, especially in core numeracy.