BoE’s Haldane: Economy Picking up ‘Sooner and Faster’ Than Expected

30 June 2020

By David Barwick – FRANKFURT (EconoStream) – The UK economy is coming back ‘sooner and faster’ than the Bank of England had anticipated, BOE Chief Economist Andy Haldane said Tuesday.

In a video posted to the BOE website, Haldane explained his dissent from the Bank’s last monetary policy meeting.

‘My judgment on the balance of risks led me to vote to maintain the monetary stance rather than to loosen it further’, he said. In his view, ‘the upside news on demand since our previous meeting in May had outweighed the negative news … on the UK outlook.’

At the meeting of the BOE’s Monetary Policy Committee ending on 17 June, Haldane was the only one not to support the MPC’s decision to increase by £100 billion the target stock of purchased UK government bonds, financed by the issuance of central bank reserves, taking the total stock of asset purchases to £745 billion.

At this still-early stage, a graphic depiction of economic developments would seem to resemble the letter V, he argued (‘so far, so V’), notwithstanding scepticism about the materialization of this optimistic scenario. Indicators suggest that recovery in both the UK and globally has come ‘both sooner and faster’ than expected, he said.

Haldane rejected the idea that ‘the UK’s faster-than-expected recovery might simply reflect an earlier relaxation of lockdown’, as the pace at which lockdown measures were eased was in fact ‘broadly in line’ with the scenario of the BOE’s May Monetary Policy Report, he said.

This points to the ‘underlying strength’ of consumer spending, he said. ‘Put differently, consumer spending in the UK is probably already above the level we were projecting to prevail in Q3 in the May MPR scenario.’

Although less evidence is available with respect to the evolution of other components of GDP, these appear to be ‘broadly in line’ with expectations in May, he said.

To the extent the increased spending reflects pent-up demand, he said, it might not be sustained. ‘Against that, though, for us the balance of evidence so far suggests … consumer spending at least is on pretty steady legs, it’s not simply the bring-forward of later spending’, he said.

If elevated spending proves durable, the cumulative loss of 2020 GDP versus projections at the start of the year would be around 8% rather than the 17% forecast in May, he said.

How the second half of the year depends on whether a negative or positive feedback loop between spending and employment materialises, he said. For now, the outlook is uncertain, he added.