Gordon Brown always used to joke that there were two kinds of chancellors: the ones who failed and the ones that got out in time. With Mark Carney only a month away from ending his stint at Threadneedle Street, the question is whether the same principle applies to Bank of England governors as well.
When Carney arrived at the Bank in 2013, official interest rates were 0.5%. He leaves with them only a quarter of a point higher, at 0.75%. So will it fall to his successor, Andrew Bailey, to preside over the long-anticipated tightening of policy?
On the face of it, the answer is yes. The government is planning an expansionary budget on 11 March. A 6.2% increase in the minimum wage comes into force in April. House prices are back on the rise across the country. And, according to the latest official figures, the annual inflation rate rose sharply last month – from 1.3% to 1.8%.
Despite all that, Britain is not in the early stages of a traditional wage-price spiral. For a start, there were a couple of one-off factors that pushed up inflation in January. There was a jump in the price of oil – now reversed as a result of the coronavirus – and the falls in energy prices in January 2019 were not repeated.
Moreover, there’s not much sign of inflationary pressure in the pipeline. Wage pressure is easing and the price of goods leaving factories is rising by only 1.1% a year.
There are two other factors to bear in mind. The first is that an already struggling global economy is being dealt a fresh blow by the coronavirus. The second is that the pound is at its strongest against the euro since the Brexit vote in the summer of 2016. Although that has more to do with the current weakness of the single currency than confidence in sterling, it will help to keep the lid on inflation by making imports cheaper.
Bottom line: inflation will fall in the coming months, giving Bailey time to play himself in before even needing to think about raising rates.
Narrow the industrial strategy – and fund it properly
A compendium of Theresa May’s gifts to the nation would be right up there in a list of the world’s smallest books, but one achievement the former prime minister could point to was the launch of a UK industrial strategy in December 2017.
The white paper published by the then business secretary Greg Clark was not short on ambition, claiming a different approach was needed to tackle Britain’s productivity crisis and a lost decade of earnings growth.
Put simply, the strategy was aimed at five specific weaknesses of the UK economy: insufficient investment in R&D; poor infrastructure, regional imbalances, inadequate skills and a lack of readiness for grand challenges ahead, such as the climate crisis.
So how are things going? Not brilliantly, according to the Industrial Strategy Council (ISC), headed by the Bank of England’s chief economist, Andy Haldane, which was given the job of monitoring progress towards the government’s lofty goals.
Haldane’s first healthcheck identifies 142 distinct policies in the strategy but says that most have little or no cash going into them. As a result, they are very unlikely to make any real difference to the economy. There is not much evidence of the focus, financing and policy coordination needed to meet the grand challenges, with the need to do better especially obvious when it comes to meeting the 2050 net zero carbon target.
The ISC has no statutory power. It is not even a truly independent watchdog because its support staff come from the business department, which is responsible for the industrial strategy. But even talking shops have their uses and the government would be well advised to heed Haldane’s main conclusions: focus on a smaller set of core issues, fund them properly and commit to them over the long term.
Boeing’s 2020 shaping up to be worse than its 2019
If there was one company happy to see the end of 2019 it was the US plane maker Boeing, whose entire 737 Max fleet was grounded worldwide after two fatal crashes.
Unfortunately, 2020 is shaping up to be little better: competition from Airbus is stiff; the global economy is slowing; environmentalists are targeting air travel. Now – and perhaps worst of all – debris has been found in the fuel tanks of some of the grounded 737 Max planes. If you are trying to restore confidence in your brand, this is the last thing you need.