Carney Christmas Carol but Harder Times Ahead? ECONOMIC ANALYSIS

Article excerpt

Byline: Russell Lynch

MARK Carney was in festive spirits in New York this week as he called on A Christmas Carol to paint a largely optimistic picture of the UK's recovery prospects. After recent disappointments, the Bank of England Governor said: "It seems reasonable to expect the hopes and dreams of the holiday season to be fulfilled."

Carney's Dickensian adaptation of the three spirits that visited Scrooge set the scene: the Ghost of Christmas Present is a "cheerful spirit" buoyed by good news but the Ghost of Christmas past reminds us that the economy is a long way from normal. The Ghost of Christmas Yet to Come is a vision of "aggressive" monetary policy with low interest rates to entrench recovery while the Bank uses levers such as recent tweaks to Funding for Lending to ward off a housing market pushing "warp speed".

The Governor is in all likelihood right to be sceptical over the latest fashionable pessimism over a low-growth future taking hold since former US Treasury Secretary Larry Summers' speech on "secular stagnation" to the IMF a month ago. Economists, so the old joke goes, have predicted eight of the last three recessions. If we were to give into this thinking, central bankers and policymakers might just as well pack up and go home. The "dismal science" of economics has never been known for its optimism.

Nevertheless, Carney, pictured, was in danger of skating over a number of issues in his upbeat assessment of the UK's chances. Take business investment, for example. He pointed out, rightly, that this rarely leads a recovery -- although that was a line we heard a lot less often from Threadneedle Street four or five years ago. However much the Bank mistrusts the figures, what is undeniable and plain from the graph above is that business investment is still lagging dramatically below 2008 levels long after the point at which the aminal spirits among businesses in the last two recession had recovered previous peaks. …


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