Forecasts that blight trust: No one expects Bank to massage projections, but we shouldn’t underestimate harm of bleak forecasting, says ALEX BRUMMER
Under pressure: Bank of England boss Andrew Bailey
Not so long ago, central bankers made decisions behind closed doors and a specialist coterie of Fed and Bank of England watchers earned their living predicting future moves.
In those times, it would take six weeks for minutes of meetings of the US Federal Reserve’s open markets committee to cast light on interest rate decisions.
At the Bank of England (pre-independence in 1997), it was the governor’s eyebrow, and nods and winks from the Treasury, which decided matters.
Gordon Brown put an end to the 1990s ‘Ken and Eddie show’ when amid great bonhomie Chancellor Ken Clarke and governor Eddie George would seek to agree on how much we should pay for our mortgages.
The last couple of decades have seen big changes. Central bankers focus on clear communications with the goal of avoiding surprises. Mystery has been stripped away and Fed chairman Jay Powell and Andrew Bailey, the Bank’s governor, emerge from their temples to reveal the secrets to gathered economic reporters, TV cameras and social media.
Among the messages to emerge from Thursday’s deliberations was that the UK is projected to slide into the longest recession in a century.
Yet the Bank went onto say that it didn’t really believe in the market forecast of longer-term interest rates, so activity might not be as weak after all.
No one expects the Bank to massage its projections. But we shouldn’t underestimate the harm that can be done by bleak forecasting. Business investment in the UK at present is abysmal. And it is certainly not going to be helped by the governor spreading gloom. Neither will it benefit from Downing Street leaks about how companies and shareholders can look forward to higher taxes on earnings and dividends.
By now, it might be assumed that the combination of soaring energy costs and consumer prices, together with surging mortgage bills, might have stopped economic activity in its tracks.
Yet in spite of the despondency, there are current indicators showing the country refuses to be traumatised.
Construction is bouncing back with the S&P purchasing managers index at a five-month high in November boosted by housebuilding. Unrelenting dismal projections are having their impact on new orders, which are falling back to pandemic levels.
Elsewhere, October car sales climbed for the third consecutive month even if the comparable month in 2021 was obliterated by supply bottlenecks.
The Office for National Statistics’s November 3 bulletin suggests consumers are determined to defy the consensus.
Retail footfall was up, online job advertisements are sharply up on the pre-pandemic average, gas prices are 74 per cent below the same week of 2021 and UK flight numbers are creeping up and are now at 87 per cent of 2019 levels. Optimism prevails in spite of a dismal narrative.
His Master’s Voice
China-based insurer Ping An is becoming ever more shrill in its battle to shake up the UK’s biggest bank HSBC.
It still wants a spin-off of the Asian business, is demanding more aggressive costcutting and complains that top management lacks Asian experience.
HSBC rejects the criticism of its 8.3 per cent shareholder, pointing to cost-cutting drives and strengthened returns on its equity.
HSBC chairman Mark Tucker, with a wealth of experience in China from his time at AIA, could do worse than turn his fire on Ping An.
In spite of having share listings in Shanghai and Hong Kong, the insurer’s ownership structure is obscure.
But as with all Chinese companies, Beijing exerts an enormous amount of control over public utterances.
Who is really pulling the strings?
Amid earnings disappointment at Warner Bros Discovery, the bright spot is the Game Of Thrones prequel House Of The Dragon.
The lavish series was premiered by Sky with great fanfare at London’s Leicester Square in August.
Most of the production was at the Leavesden Studios in Hertfordshire with filming on location in Cornwall.
The show is broadcast by Sky Atlantic in Britain and HBO in the US.
Another little acclaimed triumph for the UK’s surging movie and creative sector.