Some cautiously positive news about the economy emerged last week, with the Standard & Poors Global Purchasing Managers’ Index (PMI) reporting that the UK has avoided recession, with growth picking up momentum at the end of the year. The headline growth indicator rose from 50.7 in November to a six-month high of 51.7 in December, with survey respondents commenting on tentative signs of a revival in customer demand, especially for technology and financial services.
Commenting on the findings, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said: “The UK economy continues to dodge recession, with growth picking up at the end of the year.”
The British data contrasted markedly with the Eurozone, where recession remains a high possibility, if indeed it has not already commenced. Business activity declined again in December, particularly in France, which experienced the steepest reduction in activity in a decade (ignoring the pandemic) according to PMI.
To add to continental gloom, Germany, the EU’s largest economy, has probably already entered recession. PMI reported a deeper decline at the end of the year.
London markets responded positively to the PMI data early on Thursday morning, with surges in both the the FTSE 100 and 250 indices. An earlier than expected cut in interest rates was hoped for, emulating the loosening of money supply signalled by the US Federal Reserve, which has indicated that rates will fall over the coming months.
Sadly, the optimism was crushed later the same day, with the announcement by the Bank of England that UK rates would remain on hold. To make matters worse, the perennially Eeyorish Governor, Andrew Bailey, let slip that the Monetary Policy Committee, far from looking to reduce rates, had indeed considered increasing them. By the end of the day, the FTSEs had ended flat.
Bailey has a remarkable facility for perceiving darkness at the end of the tunnel, for erasing the silver lining of any cloud and for robustly resisting the proposition that there is any bright side of life on which to look.
Granted, he could not be held responsible for Covid, but the Bank’s monetary policy during the pandemic was far too loose. Interest rates should have been increased much sooner. The consequence has been higher inflation than was avoidable. And now, with the UK, unlike our Eurozone cousins, “dodging” recession, Bailey is apparently warning us to abandon hope of interest rate relief any time soon.
It was Gordon Brown who, as Chancellor, gave the Bank its independence shortly after entering Government in 1997. That seemed a good idea at the time. However, Andrew Bailey’s tenure in Threadneedle Street has been so disappointing that one must wonder whether it is time to consider ending that independence.
After all, you can vote out a Chancellor, but at present you’re stuck with a Governor.
Notwithstanding last week’s interest rate disappointment, may I wish Daily Post readers the happiest of Christmases and a peaceful, prosperous and optimistic New Year.