Cheap money will not fix the UK economy’s issues as the country moves out of the Covid-19 crisis, Bank of England chief economist Andy Haldane has said in a parting shot to his fellow central bankers.
“If we keep on pouring the punch, tomorrow’s hangover will be bad,” said Haldane, who has been a lone voice among the Bank’s members calling for quantitative easing to be scaled back.
Speaking to The Spectator, Haldane, who is leaving the central bank this month after a 30-year stint to become chief executive of the Royal Society for Arts, doubled down on previous warnings he has made about the impact loose monetary policy is having on an economy that is already starting to show signs of a strong rebound.
“It wasn’t clear that the additional stimulus, the additional fuel needed to be poured on what was a pretty well-stoked fire already,” he told the magazine. “The UK economy’s probably within a few per cent of its pre-Covid level… [but] we’ve got this huge double-barrelled monetary and fiscal response which will be pushing that reaction of the economy back above base.”
Haldane was the only member of the Bank’s Monetary Policy Committee to vote to reduce its quantitative easing target in a May meeting. On 9 June, he told LBC radio that the UK economy is going “gangbusters” and the Bank may need to consider slowing monetary stimulus to control inflation.
“My best guess is that the UK economy will move from bounce-back to boom without passing ‘go’ as cash is splashed and the holy trinity of animal spirits, buoyant balance sheets and fiscal pump-priming combine,” Haldane wrote in an article in The New Statesman that same day.
“If central bankers wait to see the whites of this tiger’s eyes before acting, they risk having to run like the wind to avoid being eaten.”
The Bank of England’s bond purchases increased from £645bn in March 2020 to £895bn in November. The figures dwarf the £200bn of easing the Bank enacted in November 20o9 during the financial crisis.
Asked if he had regrets about the amount of quantitative easing poured into the economy since the beginning of the Covid-19 pandemic, Haldane told The Spectator: “I sort of cleanse my conscience on this. Had we not taken those QE actions, 12 years ago and recently, I reckon between 500,000 and a million more people would have been unemployed.”
On 11 June, data from the Office for National Statistics showed that the UK economy grew by 2.3% in April, marking its fastest growth rate since July last year.
The lifting of lockdown restrictions in March and April provided a boost, although the fourth and final step has been delayed from 21 June to 19 July as the more transmissible Delta variant of Covid-19 spreads across the UK.
The challenges going forward for the UK economy — innovation, investment, infrastructure, skills, levelling up — Haldane told The Spectator, were not ones that could be solved by the bank creating easy credit.
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