By Philip Stephens
You may think the big commercial banks got away with it after the great financial crash. But what about the Bank of England? Britain’s central bank was asleep at the wheel when the storm hit in 2007. Mark Carney’s radical shake-up of personnel and responsibilities in Threadneedle Street is an uncomfortable reminder that failure is sometimes richly rewarded.
The blame does not lie with the present governor. Mr Carney was drafted in from Canada last year to replace the departing Mervyn King. The cutbacks in banking supervision that preceded the crash came on the now Lord King’s watch. A reorganisation that leaves Mr Carney with a total of five deputies, however, is a reminder of just how much additional power has accrued to the Bank during the past few years. When the BoE was first granted independence during the late 1990s, the then governor happily settled for two deputies.
After almost five years of disappointing services output, Britain’s shops, restaurants, car dealerships and airlines have come to the rescue of George Osborne. They have also saved the country from deeply misleading “triple-dip” headlines, although output is still 2.6 per cent below its 2008 peak.
The preliminary estimate of gross domestic product rose 0.3 per cent in the first quarter. As my column today argued, we should not pay much attention to this figure, since the cash estimates of GDP, which come later, are more relevant to the economy’s predicament. But there are some implications of this positive surprise and I list them here in order of importance.
The UK economy is at a standstill and opinions on how to get it going are divided. Should we rely on an aggressive monetary policy or is it time to borrow more and invest? Martin Wolf, chief economics commentator, and Chris Giles, economics editor, put forward their opposing views on what George Osborne’s Budget needs to deliver. Who do you think is right?
George Osborne chose to ditch straight-talking about the public finances in the Autumn Statement on Wednesday and replace it with fiddling with numbers. I think all of the figures he used in his statement were true — there were no lies — but to coin the motto of accountants, many figures were not fair.
True without always being fair used to be the watchword of Gordon Brown as chancellor, so Ed Balls, shadow chancellor, has little to complain about. Those of us who did complain about Mr Brown’s use of comparisons therefore have a responsibility to be fair and moan about Mr Osborne too. Here are five elements of his speech yesterday which annoyed me because they failed the true and fair test.
Being prepared for big economic statements, such as tomorrow’s Autumn Statement, is a must, given the quantity of information released in such a short time. Even though this will be the 41st Budget, Autumn Statement or pre-Budget report I have covered, I try not to be complacent.
Here’s what I think is important (sorry about the length), what type of analysis is relevant to understanding Britain’s economy and public finances, and at the bottom is a moan about the way in which George Osborne has decided to follow Gordon Brown down the road of playing games with numbers.
It seems the chancellor doesn’t listen to the governor of the Bank of England.
George Osborne said last night that Project Merlin, the government’s flagship agreement to appease public anger over the banking crisis, was “already delivering more lending to SMEs”.
Not according to Sir Mervyn.
This morning the Financial Times is running quite a few Budget stories. My favorites are the pieces about the regional effect of spending cuts, which we have simulated (click on the beautiful maps). These show very simply that whether public spending is cut from social security or from government consumption, it will hit growth harder in the North than South and harder in poorer than in richer areas.
George Osborne’s constituency of Tatton in Cheshire suffers the least of any region on one of the comparisons. The chancellor will like that. Others might take a different view.
Some may say that is a description of the bleeding obvious since everyone know that public spending tends to follow need. Of course it is also not a dynamic model, just some very simple calculations, but they are important in showing the first-round effect of cuts. I have not seen anyone else doing this sort of thing. It might even make Nick Clegg, deputy prime minster, stop and pause before describing spending cuts as fair and progressive. The cuts might well be necessary,