Haldane explained why the UK economy has fared worse than others:
We’ve seen many teetering businesses who have been able to just make it through Covid and the cost of living but are vulnerable to any shock that might come along.
Think of it as a weakened societal immune system, that we’ve run down our defenses and that makes us particularly vulnerable nasty coming along.
It seems that recent shocks that we’ve had, which have been global, from Covid to the cost of living, but the UK always seems to cop disproportionately for the after-effects in terms of hits to income and lives and that is down to us not having invested sufficiently in our systems whether that’s health or education or charities.
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Andy Haldane, the Bank of England’s former chief economist, now chief executive of the Royal Society of Arts and a government adviser on leveling up, has predicted real wages would fall again this year as higher mortgage costs continue to bite. He also warned that the recent political chaos was contributing to the UK’s poor economic performance. But he also said that with inflation having peaked, central banks could raise rates more slowly, and saw “flickers of life in the economy.”
Speaking on BBC radio 4’s Today programme, Haldane argued that the UK economy was less resilient to economic crises because of underinvestment and poor coordination between the public, private and charity sectors.
The terrible double whammy of first Covid and then the cost of living crisis has and is causing huge amounts of financial stress for many businesses, many households and of course many charities.
We’ve had a lost decade and a half in terms of pay rises in inflation-adjusted terms. Last year we saw real pay fall and we’ll most likely see the same happen again and that is putting acute financial stress and indeed mental stress on a great many households, that’s one consequence of the absence of growth, or certainly anaemic growth that we ‘ve seen.
Asked whether the political instability had contributed to the UK’s poor economic performance recently, he said:
When you do have a ministerial merry-go-round, that increases the probability of measures not being followed through and of programs that are working not being scaled up. We are still a little short of having that medium term plan for growth in this country that we could then adhere to whichever government and whichever minister is in place.
Asked whether he had any regrets, as the Bank of England has hiked interest rates at the same time as when the massive energy price hikes and inflation have come through:
It is painful and I fear there is more pain to come as those mortgage rates rise from last year and begin to hit people’s bank accounts over the course of this year. I would have preferred the Bank and other central banks to have started their rate rises a bit sooner. That would have helped a bit in nipping inflation in the bud and would have meant that we wouldn’t have had those rapid rate rises at the same time as the economy was hitting the buffers. But overall this global shock was always going to bring a significant degree of pain including through higher rates.
I’m hoping that with headline inflation now having peaked there is a decent chance that central banks will go a bit slower over the course of this year and won’t become too much of a brake on the recovery and the early signs on that was some flickers of life in the economy.
The Bank of Canada said yesterday it would pause after its eighth interest rate rise, to 4.5%, and there are some expectations that the US Federal Reserve could do the same.
The focus in markets today is the US GDP data For the fourth quarter, which is expected to show a slowdown in economic growth to 2.6% from 3.2% in the previous quarter.
Asian shares It hit a fresh seven-month high, as MSCI’s broadest index of Asia-Pacific shares outside Japan climbed 0.9% to its fifth day of gains, after falling back again. However, trading was thin with Australia shut for a holiday and some parts of Asia, including China, still celebrating Lunar New Year. European markets are expected to open higher ahead of US GDP.
- 9am GMT: Italy business and consumer confidence for January
- 11am GMT: UK CBI Retail sales survey for January
1.30pm GMT: US fourth-quarter GDP (forecast: 2.6%, previous: 3.2%)
- 1.30pm GMT: US durable goods orders for December
- 1.30pm GMT: US weekly jobless claims
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