Westminster is, naturally, fixated on Boris Johnson and his first speech since his Conservative leadership victory. But it’s just possible that the most interesting and important speech of the day took place in Scunthorpe.
That’s where Andy Haldane, chief economist of the Bank of England was delivering a speech called ‘Climbing the Jobs Ladder’. His speech was, nominally, about wage progression and the quality of employment. But about halfway through, the speech becomes something very different, something that looks an awful lot like a warning to a new prime minister: don’t bank on the Bank to bail you out over Brexit.
Haldane’s argument is that the major downside risks to the UK in the coming years (Brexit and a global trade war) inflict harm on the UK economy by reducing/depressing the capacity of business to generate profit, employment and wage growth. The last economic downturn was felt mostly on the demand side of the economy (people and businesses couldn’t get money to spend, and didn’t want to spend the money they did have), something that central banks have, more or less, addressed through very loose monetary policy, which makes it easier and cheaper to get money.
But the next crisis, he argues, is likely to be on the supply-side, as economic and political change disrupts businesses’ long, international supply chains and makes it harder and less attractive for firms to invest in the training and equipment that makes them more productive and profitable. And that, Haldane argues, is a problem that monetary policy cannot be used to fix (even if the Bank’s own mandate and inflation target would allow them to be used.)
What does this esoteric economic stuff have to do with Boris Johnson and his ‘new spirit of can do’?
Simply it comes down to a senior figure at the Bank of England telling the new PM that he cannot rely on the Bank to cushion the economic blow of a bad Brexit (or another downturn-inducing event).