All forecasts are off if Iran shuts the Strait of Hormuz

Just when you thought it was safe to go back in the water… Late last year, a range of forecasts suggested that the likelihood of recession in the US, with knock-on effects for the rest of the developed world, had significantly diminished. Last summer, many economists were putting the chance of a substantial downturn at 50 per cent but by November, Goldman Sachs had marked it down to 24 per cent and Morgan Stanley to ‘around 20 per cent’. Underlying this shift were strong corporate earnings and consumer spending, plus rising hopes of a settlement of US-China trade tensions. Last month saw a sell-off of safety-first government bonds reflecting the mood, and the FT’s end-of-year forecasts included a confident ‘No’ to ‘Will the US go into recession?’ by Gillian Tett, though she wisely added that ‘the question haunts the markets [and] the White House’.

On the same page, Middle East editor Andrew England also answered ‘No’ to ‘Will there be a war with Iran?’ on the grounds that Donald Trump had ‘displayed reluctance to take muscular action’. Well, we all predict at our peril: five days later, a US drone killed Qassem Soleimani, oil and gold prices leapt and stock markets trembled as the world waited for Iran’s retaliation. In today’s more efficient and diverse energy world, oil price spikes are not the economic threat they once were — but a closure of the Strait of Hormuz (though which a fifth of world oil supplies pass) would drive inflation up, optimism down and forecasters back to the drawing board.

The Mandarins’ man

My man in a pink tailcoat who serves the governor’s soup at the Bank of England rings to tell me he has decided not to retire after all, because he’s so pleased with the appointment of insider Andrew Bailey to succeed Mark Carney in March.