Casting aside the welter of economic data that informs interest rate decisions, Andy Haldane instead deployed batting statistics to explain why he had changed his mind on when to hike borrowing costs.
In July Haldane had invoked the front foot play of England batsman Ian Bell as he sided with an early move towards higher rates.
But on Friday, the senior policymaker hailed Bell’s teammate Joe Root, whose ability to stay on the back foot and play the oncoming ball late has made him a totem on the monetary policy committee as well as in the England dressing room.
Haldane told an audience in Kenilworth, Warwickshire, that the weakening global economy and falling inflation meant this was no time to be lurching forward with a rate hike - with next summer now the most likely date.
“Three months on, it is time to update the batting averages,” Haldane said. Using language that might be as incomprehensible as Gordon Brown’s post-neo-classical endogenous growth theory for those who have never heard the sound of leather on willow, he added: “Ian Bell’s batting average has remained at 45 – the front foot recovery has remained on track. But over the same period, Joe Root’s has risen to 51. Cricket statisticians and financial markets are agreed. While still a close run thing, the statistics now appear to favour the back foot.”
His non-cricket explanation did little to increase the speech’s lucidity average. “On balance, my judgement on the macro-economy has shifted the same way. I have tended to view the economy through a bi-modal lens. And recent evidence, in the UK and globally, has shifted my probability distribution towards the lower tail.” He concluded: “Put in rather plainer English, I am gloomier.”
The speech will reinforce market views that rates are unlikely to rise from their record low of 0.5% until the middle of next year.
Talk of front foot and back foot play may have stumped Haldane’s own captain, governor Mark Carney, a Canadian and a fan of ice hockey. Carney upset traditionalists this summer by axing the Bank’s traditional game of cricket, replacing it with a more ‘inclusive’ game of rounders.
Haldane’s speech, entitled Twin Peaks, cited “plenty of reasons to be cheerful” but also “reasons to be fearful”. Warning that Britain’s economy is balanced between extremes, he said the country’s economic performance “appears to be writhing in both agony and ecstasy”.
On the upside, Haldane said growth in the UK was the fastest of the G7 advanced economies, the recession appeared to have been shallower than first thought, growth was “reasonably well-balanced between consumption and investment”, inflation had slowed, unemployment was falling and share prices were up.
But he listed three features of the UK economy that “paint a more sobering picture”: falling real-wage growth; flat-lining productivity and real interest rates around 0%.
Tipped as a successor to Carney, Haldane revealed that he has created an “agony index”, which is “currently at painfully low levels.”
“Such an extended period of agony is virtually unprecedented going back to the late 1800s, with the exception of the aftermath of the world wars and the early 1970s,” he said.
A separate Haldane “ecstasy index”, based on economic growth, unemployment and inflation, suggests Britain is in “fine fettle.”
But wage growth paints a different picture, with earnings remaining stubbornly weak. Real wages have now fallen for 71 of the last 74 months. That is “unprecedented since at least the mid-1800s,” when W G Grace would have been picking up his first bat. “Rather peculiarly, the UK economy appears to be writhing in both agony and ecstasy. It is twin-peaked,” Haldane declared.
Two of Haldane’s teammates on the monetary policy committee, the hawkish Martin Weale and Ian McCafferty, are already on a sticky wicket having voted to raise rates in August and September, before UK inflation fell and global tensions rose. On Wednesday, the Bank will reveal whether they returned to the fold at October’s MPC meeting.
Haldane’s speech follows news earlier this week of a drop in inflation to 1.2% in September, well below the Bank’s 2% target. That sparked big moves in financial markets to push back bets of when the Bank’s policymakers will vote to hike rates, which have been at 0.5% since 2009. Markets had until then been pricing in a significant chance of a rate hike to 0.75% in the early months of 2015, but are now looking to the summer.
Haldane’s words about the strains on workers will resonate with the many households who have seen their income fail to keep up with inflation. Even with inflation coming down sharply on the latest figures, wages have continued to fall in real terms.
Haldane also warned that Britain was vulnerable to another explosion in the eurozone, five years since the crisis began when Greece revealed its budget deficit was twice as large as expected.
He told ITV News: “It’s a concern. It [the eurozone] is our biggest trading partner by far. We know we’ve seen recently that any event on the continent laps back to the UK very quickly through our trade links, but also through our financial links and, indeed, increasingly just because of confidence. If confidence is ebbing on the continent, it appears to leak across here pretty quickly.”
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