Julian Knight: Mark Carney's economic forecast could be under the weather
The Bank of England Governor's predictions may prove less reliable than the Met Office
Saturday 10 August 2013
The famous economist JK Galbrieth once said that economic forecasters were put on this earth to make weather forecasters look good.
This week we had the slick, new Governor of the Bank of England, Mark Carney setting out his own blueprint for the UK economy and monetary policy.
We have been here before – many, many times. You can probably recall Gordon Brown's golden rules on government expenditure, only borrowing to invest (yet investment in Gordon Brown's worldview included much higher public-sector salaries) which was based on forecasting and we all know how that ended.
The Bank itself was minded to raise interest rates to cool lending – too late – just as the financial crisis was about to break. Of course, within a couple of months rates had in fact plummeted to 0.5 per cent to stave off a depression.
Historically, the UK economy is not good territory for forecasters. In 1979, at the inception of Thatcherism, The Economist newspaper predicted that the UK would suffer a very mild recession or flat growth – this was on the cusp of a major depression which saw millions of jobs disappear as UK PLC went through a very painful restructure.
Earlier in the 1970s the predictions for the UK economy were blown out of the water by successive oil crisis.
"Forward guidance", as Mr Carney's announcement was catchily called, may be fine in historically stable economies such as Ger- many and his own Canada, but in the UK I have serious doubts of its worth.
We may be a large economy and at times more dynamic than we give ourselves credit for, but ultimately we aren't stable as others.
Mr Carney may well learn that predictions he makes today will change faster than he could imagine with the economic weather.
The UK economy and monetary policy is almost the living embodiment of the old political refrain of "events, dear boy, events".
So if you are a saver or investor what should you draw from Mr Carney's crystal ball gazing?
Firstly, the impression gathered from the Governor's first few public utterances that rates could be heading upwards were wide of the mark.
In fact, he clearly signalled that rates will only tick up when unemployment falls back to around 7 per cent, which means 750,000 extra jobs need to be created. This all equates to a D-day for rates in early 2016.
The Government will be relieved, of course, as this takes a likely interest rate rise beyond the next general election. However, this is a further blow to savers and those looking to delay their annuity purchase.
What's more, by holding off interest-rate rises for so long, the Bank may have to raise them too far. It is undoubtedly better to raise the rate by a quarter per cent in the near term than one per cent in the medium term.
Then again, Mr Carney's forward guidance may never come to pass – not if history is any guide, and to be honest I'd take that over any economic forecast. It really is less reliable than the weather.
Hot air on payday lenders
I have had quite a bit of response to my column of a couple of weeks ago, reflecting on the Archbishop of Canterbury's "financial fatwa" to the payday loan industry.
Most seem to welcome the fact that the Archbishop is at least talking about issues that matter to the community rather than the flights of intellectual fancy which characterised his predecessor.
However, readers seem to lament the desirability of the credit union sector in competing with payday lenders.
Typical of the emails received are from Mr Paul Taylor, the chief executive of financial advice firm McCarthy Taylor who wrote: "There is no way credit unions should try and move into this space (compete with payday).
"The foundation of credit unions is the spreading of capital need over a number of modest savers, sharing their savings to help those who have solid need for lending. These are cautious investors and the application process reflects this.
"Payday borrowers are generally high risk and the default risk is equally high."
At the moment the opponents of payday are in my view thrashing about. There is a demand for this type of short-term credit which isn't being met and never will be by the credit unions.
It is time to get real over this, regulate the sector and encourage viable alternatives. Everything else is simply hot air.
- 1 Malaysia Airlines MH17 crash: Pro-Russian rebel 'admits to shooting down plane'
- 2 Israel has discovered that it's no longer so easy to get away with murder in the age of social media
- 3 Israel-Gaza conflict: The myth of Hamas’s human shields
- 4 Amy Winehouse unpublished 2004 interview: ‘Ten years from now I’ll be 30, so I’ll maybe have one baby’
- 5 Dutch paedophile club to fight their ban at the European Court of Human Rights
Malaysia Airlines flight MH17 crash: 'Nine Britons, 23 Americans and 80 children' feared dead after Boeing passenger jet is 'shot down' near Ukraine-Russia border
Malaysia Airlines MH17 crash: Vladimir Putin is given 'one last chance' to end hostilities in Ukraine
The 'scroungers’ fight back: The welfare claimants battling to alter stereotypes
The truth about conspiracy theories is that some require considering
Malaysia Airlines MH17 crash: Ukrainian military jet was flying close to passenger plane before it was shot down, says Russian officer
Malaysia Airlines MH17 crash: Massive rise in sale of British arms to Russia
iJobs Money & Business
£350 - £400 per day: Orgtel: PMO Analyst - Banking - London - £350 -£400 per d...
£300 - £350 per day + competitive: Orgtel: Cost Reporting Manager - MI Packs -...
£35000 - £40000 Per Annum plus 23 days holiday and pension scheme: Clearwater ...
£475 - £525 per day: Orgtel: Test Lead, London, Investment Banking, Technical ...
Day In a Page
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000
A three-bedroom, coach house with luxury open-plan living space and contemporary breakfast bar