As I See It
Stimulus baton must now pass to Hammond
It might also provide an appropriate title for a discussion paper around the Bank of England governor Mark Carney and whether he was right to warn that post-Brexit Britain was facing a marked slowdown.
Mr Carney has a history of u-turns and false dawns and his stark warning 24 hours after the EU vote in June has raised questions as to whether he over-stated the prospect of a slowdown, and even recession.
His comments that Friday morning certainly contributed to an immediate meltdown in the markets. By trying to reassure us that the Bank was ready to respond to whatever circumstances resulted from the vote reminded us of Corporal Jones’s famous phrase “Don’t panic!” from that other comedy classic Dad’s Army.
But his warning had the opposite effect, by putting everyone on alert for a slump. The Bank promptly did what Mr Carney promised and cut the base rate for the first time since 2009.
Mr Carney told MPs yesterday that he is “absolutely serene” about the Bank’s assessment of the impact of the 23 June referendum and denied that officials “over-egged” their warnings on Brexit.
The markets have certainly staged a remarkable recovery since plummeting in the immediate aftermath of the vote and the FTSE100 has come close to breaking through 7,000, last breached in April last year.
But the surge in stock market values is largely because investors have been driven into equities as a result of poor returns on other asset classes, with the interest rate cut being a major cause.
Mr Carney told the Commons Treasury Committee that art of the bounce-back was ecause the Bank took “timely, comprehensive and concrete action and that action has had an impact.
“I’m quite comfortable with the analysis we did in advance, the preparation we did in advance, the effectiveness of the contingency measures, all of which put us in a position to help this economy adjust [to the post-Brexit environment]..”
He could claim early successes from the quick recovery of various sectors. While manufacturing may be struggling in Scotland the broader UK picture is much brighter. Similarly, data from the services sector on Monday was positive. Today there is more encouraging news from the recruitment and housing markets, according to two surveys which had previously offered a bleak outlook.
Most of the big mortgage providers have passed on the rate cut, easing the burden on home buyers and while plummeting sterling has added to import costs and increased the likelihood of higher inflation exporters are benefiting from selling goods more cheaply overseas.
Yet the black clouds are showing few signs of clearing. Charlie Bean, a former deputy governor at the Bank, has warned of a £15 billion black hole in public finances from lower tax receipts. Economists have cut their forecasts for growth, though these are always subject to change and are barely credible.
That dreaded word “uncertainty” is ever-present, though it is tempting to believe that politicians have come to see it as a useful get-out excuse for “we don’t know what we’re doing”, while company bosses can use it to keep a cap on expectations from suppliers and employees alike.
As for the governor, he is steadily running out of ammunition. Interest rates could be cut to zero and he could further increase the volume of bond buying. Would there be any real benefit?
Some say that the cut in the interest rate has only stimulated a housing market that is already too high and that it will encourage more household debt.
It may be that the Bank’s work is done and that it is now time for the Treasury and other government departments to do their bit. With new occupants in Downing Street it is could be time for a further easing of the tax bill and more government spending.
Prime Minister Theresa May and her Chancellor Philip Hammond have been handed an opportunity to provide some proper stimulus in the Autumn Statement. Let’s hope they don’t miss it.