When the Canadian Mark Carney stood down as Governor of the Bank of England there were many who regarded his departure as a far from unbearable loss.
The irrepressibly self-confident Carney’s manner had begun to grate. His Buzz Lightyear-meets-George Clooney shtick di lui had started to reek of smugness and the chance to replace him with someone less flashy seemed like a good thing.
A little more than two years on and Carney’s obvious self-regard now seems like a small price to have paid for his stellar abilities, especially on the presentational front – an aspect of the role that has become ever-more important since the Bank was granted independence 25 years ago.
Because his replacement Andrew Bailey has proven simply not to be up to the job. Partly as a result of the Governor’s plodding approach and stumbling public performances, confidence in the UK economy is on the slide.
Inflation is heading towards levels not seen since Maggie Thatcher won power by being filmed going into corner shops to see how much her basket of goods had gone up in price since her last visit.
It is easy – and fair – to point out that not everything is Bailey’s fault. He took the job just as Covid was plunging the UK economy into cardiac arrest and during the intermission between the UK’s departure from the EU and the subsequent signing of a trade deal that he often seemed odds against.
Since then he has had to read the runes on various supply shocks and a surge in activity and demand as the emergency phase of Covid abated. Seldom has the business of economic forecasting seemed more like the children’s party game of pinning the tail on a donkey while blindfolded.
Yet it is undeniable that whether through bad luck, bad judgment or a combination of the two, Bailey has called things wrong. Inflationary pressures have proved to be nothing like as “transitory” as he was claiming they were until almost the end of 2021. It was at the start of 2022 that he somewhat sheepishly told MPs on the Treasury select committee that they might prove longer-lasting than first thought.
It is not merely taking advantage of the benefit of hindsight to point all this out. Many economists and pundits said at the time that Bailey and his Monetary Policy Committee were exhibiting dangerous complacency about inflation and should have raised interest rates and started to unwind quantitative easing earlier.
Indeed, the departing chief economist at the Bank, Andy Haldane, warned his boss in a newspaper article a year ago that the “inflation genie” needed to be put back in the bottle and that we were heading for a “protracted – and damaging – period of above-target inflation “.
Bailey responded the next day by insisting that upward price pressures were likely to prove fleeting: “The really big question is, is higher inflation going to persist or not? Our view is that on the basis of what we’re seeing so far, we don’t think it is, ”he said.
Twelve months down the line and it is not hard to see whose prediction has been borne out and whose is on life support. Given that Bailey’s chief academic expertise was in economic history – the study of what appears in the rear-view mirror rather than the road ahead – perhaps we should not be surprised.
When he was brought back to the Bank to be Governor after a spell away as Chief Executive of the Financial Conduct Authority, it was rumored that he had not been Boris Johnson’s favored candidate and that it was the short-lived Chancellor Sajid Javid who had been his key backer.
For a while Bailey’s limitations were screened by the Carney-esque ability of the new Chancellor Rishi Sunak to keep confidence in the economy in good shape during the early stages of the pandemic. But there comes a moment when the tide goes out and everyone can see who isn’t wearing any trunks.
It is surely Bailey’s bizarre effort to persuade workers to limit the pay rises they ask for – or are even prepared to accept – that most highlights his loss of control. In effect he is asking individuals to correct his own sloppy approach to the money supply.
Yet a first-year economics undergraduate with a basic knowledge of game theory would appreciate why asking individual workers to unilaterally forgo pay rises in the face of big price rises without even giving them a guarantee that such restraint will be generally enforced is a total non- starter.
That Bailey has been reduced to issuing such pointless requests as a major plank of his strategy for the economy shows he has run out of road. New leadership is now urgently required at the Bank of England.