In these times we have seen the technocrats grab economic power in what is something of a challenged to democracy. Often their words are more important than that of elected politicians. Also they like to travel in a pack and are not keen on venturing outside of it. So we can learn from the latest outpourings from Bank of England Chief Economist Andy Haldane who has given 2 interviews over the past 24 hours. Or rather they have been published in that time frame.
The interview with the Guardian focused on unemployment.
Haldane said unemployment was a scourge that could leave long-lasting scars. “I saw it up close and personal in the 1980s but it is still very much visible now,” he added.
“If we are not careful those unemployment problems can become sticky. What we found from the 1980s experience is that they can become generational. It is passed down the generations and you have whole families without work.”
It is of course important to learn from the past but there is also the danger of being like a first world war general and fighting the previous war rather than the new one. Andy Haldane seems to think that things have gone as well as they can.
“Policy has been tremendously important. A huge amount of insurance has been provided by the government and the Bank of England – supporting people’s jobs, supporting incomes, supporting businesses and supporting borrowing costs. Without that insurance the outcome for jobs, incomes and the economy would have been massively, massively worse.”
He suggests a much worse path if we had not acted as we have.
Haldane said without action the 25% collapse of the economy in the spring would have pushed up the unemployment rate by 10 percentage points. “Instead of 2-3 million unemployed we would be talking about 4-5 million,” he added.
Whereas his opinion on where we are is relatively benign.
Haldane said he estimated that the UK’s unemployment rate had picked up from less than 4% to more than 6% since the arrival of the pandemic but job losses had been less severe than the Bank’s early estimates.
This time around I think we can cut them some slack on the issue of another set of forecasting errors as this year has been quite something. However there is an issue here where the Chief Economist is wither being deliberately misleading or ignorant and it relates to the way that the unemployment rate is concealing a lot of hidden unemployment. He has started the journey by quoting an unemployment rate if 6%+ when it is officially 4.9% but as you can see below it falls quite a distance short of my estimate. From the 15th of this month.
That is the impact of the furlough scheme in the main and if we quantify that we see that around 1.5 million people are in a type of hidden unemployment so putting them back in leaves us with 3.2 million unemployed or a near doubling of the numbers. On that road the unemployment rate looks to be a bit over 9%.
Perhaps our Andy is somewhat trapped by his previous optimism.
Haldane has been the most upbeat of the nine members of the Bank’s monetary policy committee in recent months.
Indeed and if we go back to the 30th of September we were told this.
Now is not the time for the economics of Chicken Licken.
For those unaware there was a description of this.
The fictional fowl who, having been hit on the head by an acorn, declared the sky was falling in.
This morning in something of a pivot our Andy has been interviewed by Bloomberg and the main subject is inflation.
The Bank of England must have a “laser focus” on keeping inflation expectations in check after the pandemic, Chief Economist Andy Haldane said, highlighting the tricky balance the nation faces in managing its massive debt burden.
There is a lot going on in that sentence but let us start with the contradiction between the opening statement and this.
While the BOE is willing to let price growth temporarily overshoot its 2% target as the economy emerges from the current crisis, there can be no question of letting that sentiment become entrenched, he said.
We have been here before when posy the credit crunch the Bank of England let inflation rise above an annual rate of 5% in late 2011 and in fact it took another couple of years or so for it to return to target. This caused damage to real wage growth which is yet to be repaired. Thus the word “temporary” has its own section in my financial lexicon for these times.
It would appear that people are not falling for this line this time around.
Whether policy can stay that loose depends on how businesses and consumers respond when the crisis ends. A gauge by Citigroup Inc. and YouGov last week showed U.K. household inflation expectations for the next 12 months jumping.
Indeed the latest Bank of England survey suggests the same.
Question 2c: Asked about expectations of inflation in the longer term, say in five years’ time, respondents gave a median answer of 2.9%, compared to 2.8% in August.
Indeed if we look at that survey there is quite a critique of inflation measurement in the UK.
Question 1: Asked to give the current rate of inflation, respondents gave a median answer of 2.5%, compared to 2.6% in August.
Yet the so-called lead indicator from the Office for National Statistics tells us this.
The Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month inflation rate was 0.6% in November 2020, down from 0.9% in October 2020.
There are a load of issues headed by its inclusion of rents which do not exist ( Imputed Rents) and the fact that they are based on numbers from last tear rather than November. But a new front has opened on the issue of puppies. Let me hand you over to Belfast Live as I should mention Northern Ireland more.
The cost of all dogs appears to have risen sharply, especially more popular breeds such as cavapoos and cockapoos.
A recent survey by Pets4Homes shows cocker spaniels have seen a price increase of more than 200% this year.
Jack Russell terriers that once sold for £350 are now on the market for £2,000.
A cavapoo which would have cost £1,000 last year, is now expected to cost around £3,000.
I have to confess I do not know what a Cavapoo is but in Battersea mini-daschunds are all the rage which prices now at £3500. Meanwhile the section Purchase of Pets in the inflation series showed an annual inflation rate of 2.7% which is something from another universe.
There is an element of self-selection in these numbers as you have to be able to pay such amounts but of you look at the Jack Russell prices you did not have to in a clear example of inflation letting rip. The issue of it being missed is one I have raised about what you might call pandemic products such as face masks and sanitiser but the official view is that they are too minor to produce any real change.
So our “loose cannon on the decks” has spoken and it seems he is as detached from reality as ever. For example the issues with inflation are two-fold. The first is that the Bank of England has given the economy quite a monetary push with the annual rate of broad money ( M4) growth at 13.1%. So there is an element of a “laser focus” on something it has created. Also there are issues out there.
China’s exchange moved to tighten restrictions on the trading of iron ore futures, which hit a new record high on Monday and more than double from April levels. …….Iron ore futures price has soared in recent months, with the the most traded contract on the Dalian Commodity Exchange surging nearly 10 per cent on Monday to 1,144.5 yuan ($175) ( Yuan Talks)
Dies anybody out there believe the Bank of England will respond to an inflation rise? It was only yesterday we were noting that it has switched UK debt risk into Bank Rate.
Savers have learnt about the word temporary from the Bank of England too as this is from September 2010.
“It’s very much swings and roundabouts. At the current juncture, savers might be suffering as a result of bank rate being at low levels, but there will be times in the future — as there have been times in the past — when they will be doing very well.” ( Sir Charles Bean)
Next there is the issue of how inflation is measured as it seems increasingly to be like th science fiction series The Outer Limits.