Chief economist to the Bank of England, Andy Haldane, has told how businesses are anticipating a three per cent knock to economic output should a no deal Brexit arrive on Halloween.
The senior figure, tasked with interest rate setting and regarded as one of the most influential men in the country, was addressing an audience in Scunthorpe.
He said: “No-one really knows what impact a no-deal Brexit or any Brexit will have on the economy. We have no historical precedent that’s even close to an event like this. One way to answer this essay question it is to ask companies.”
He told how research with 10,000 businesses on the anticipated impact brought figures forward of - 3 per cent on output, employment and exports, with investment down 1.5 per cent. It compared to a 2.5 per cent increase in output and 2 per cent export boost should an orderly withdrawal be managed. Investment was envisaged to be up 0.5 per cent and employment 0.3 per cent.
“I have no idea if these numbers bear any resemblance to what would happen but these expectations have been important factors in shaping the futures of business, as business investment has been flat for at least 12 months; and also important factors for the financial markets,” he continued. “As the chance of a no-deal Brexit have gone up, the pound has gone down and financial markets’ expectations of interest rates have gone down too.”
He hasn’t worked directly with Mr Johnson and cannot comment on his likely impact, stating it was a case of “wait and see” on economic policy.
While he has been clear on a willingness to leave without a deal if necessary, and talk of parliament suspension to take it through, the Bank stays with existing policy.
“We have a new Prime Minister who has promised us we will have a deal,” Mr Haldane said, batting away any political questions clearly in the Sir Ian Botham suite of Glanford Park, where one of England’s greatest cricketers is celebrated for his football. “The chances (of no-deal) are one in a million he said, so quite low. We assume when we produce a forecast a deal will be done.
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“If you believe Paddy Power, that well known arbiter of economics, the odds on a no-deal are more like 30 per cent. And what’s more, as those odds have gone up, stuff has happened. The pound has gone down, interest rate predictions have gone down, and that risks a disconnect between forecasts we make and reality of the situation.”
He told how Bank of England governor Mark Carney has said he will look at the sensitivities around August’s forecasts, aware of the disparity, as it looks to “reconcile some of this”.
Adding that a golfing metaphor works for him having just returned from The Open, he said: “We have one tool, one golf club and two very different fairways. We need to avoid the rough.”
Mr Haldane’s main thrust was the jobs market, and the rise in positions but not pay, as well as wider economic growth issues, with Brexit a focus of the latter too.
Reflecting on “a decade of good news on job creation”, with almost 3.5 million new jobs created in the 海角视频 since 2012, he said: “We cannot find a period since the Second World War that has had such a big boom in jobs, a genuine jobs bonanza. What’s more, the best we can tell, the vast majority of these jobs have been full time jobs, around 80 per cent full time, half of them created for women, with young, middle-aged and old all benefiting from increased rates of employment – a broadly based jobs bonanza. Also broadly regional, every region has seen unemployment fall by at least 4 per cent, and that’s true here in North Lincolnshire, although the unemployment rate is a little above the national average.
"It has been a jobs boom and what that has meant is the jobs market, on many metrics, looks pretty tight. More vacancies are being advertised than there are people available to fill them. Skills, skills and skills are the three biggest concerns. The skills shortage is pretty broadly based.
"Typically when the jobs market is this tight it tends to lead to one thing, and that’s a rising pay packet, yet until relatively recently there has been precious little evidence of that happening. So alongside a jobs bonanza we have we have seen something of a disaster when it comes to pay. For the first 60 years, until the dawning of the global financial crisis, real pay headed north at an increased rate year on year of two-and-a-bit per cent, reflecting the growth rate of the economy. That puts in to some sobering context just what real pay has done over the last 10 years.
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“Real pay today remains below what was previously seen back in 2007/08 by around five per cent. You have to go right back to the 19th century to find a period when real pay has under-performed to this degree on a consistent basis over the course of a decade. A lost decade if you like for the average worker. It is true for every region, every occupation pretty much and through young, middle and old age. Also across wage distribution, poor to rich, every cohort has seen real pay stay below levels it was a decade ago – an equal opportunities pay disaster has been the name of the game for the last 10 years.”
Mr Haldane told how there were now five million people self-employed, with one million agency and one million on zero hours.
Of the latter two, he said: “For some these have been pretty good news. One third say flexibility is helpful. If you are a woman coming back to the world of work it is very valuable, if you are a young person working and educating at the same time, but it is not for everyone. For some that welcome flexibility morphs into wider insecurity.”
He told how at the outset of the recession predictions of job losses and an estimated 10.5 per cent unemployment made by the Bank had been found to be far higher than the reality.
“Employment didn’t raise anything like we expected which is a good news story. Fewer people fell off the jobs ladder. The flip side was people remained in jobs by taking a freeze or a cut in the pay packet.
“Unemployment is no longer a scourge but in its place is a different sort of scourge, not of job insecurity but of income insecurity,” he said. “That income insecurity helps explain a lot about what has happened over the last 10 years or so.”
Job switching declined too, even though higher wages were available.
“This sticking in jobs is perhaps because of a feeling of insecure, so none of that boom passed to the pay packet, or hasn’t until relatively recently,” he said. “It is a story where despite a strong jobs recovery, fewer people are switching jobs to boost pay packets because of a perceived feeling of job insecurity. Even those switching are not climbing the jobs ladder as much as they would have in the past. People are less willing to switch industry, less willing to switch occupation and less wiling to move geographically to get on the next rung of the ladder.”
So what is prompting the uncertainty. Brexit again, and wider battles from the US to the Far East are having an influence, as well as a lingering feeling of austerity perhaps.
“Risks to the economy have picked up during the course of the year,” Mr Haldane said. “Globally the single most important reason for that is trade. We have seen a number of trade wars beginning to be waged across the planet and in a more linked up international trading system. This has got underneath the skin of business, in particular those businesses part of a global supply chains.
“The sentiment fall-off has been more rapid than the fall off of underlying action. This is a downside risk rather than a downside reality. The balance of global risk has switched to the downside.
“At the Bank of England we find ourselves at the horns of a dilemma with higher inflation above our target and weaker growth. If we were to be no-deal our response would not be automatic, it would depend on what happened in the economy.
“What happens to interest rates? The course of them will be shaped by what happens in the economy, not what happens in the US EU area or Japan, or what has happened over the preceding 10 years. This time is different, Brexit makes it different.”