Bank of England chief warns of economic shocks to country with locust invasion joke


Britain faces “tough jobs” as the recovery of the economy after the pandemic stalls, the Governor of the Bank of England warned last night.

In a pessimistic speech, Andrew Bailey warned that interest rates will have to rise to contain price escalation – but stressed that the economy is currently too weak to withstand such a development.

He said that so many problems have arisen in recent months that he has been tempted to ask, “And when are locusts expected to come?” in a reference to the biblical plagues of Egypt.

Mr Bailey argued that Covid could have amplified the impact of other shocks, adding jokingly: “Either that or the gods are really against us.”

Last night in a pessimistic speech, Andrew Bailey (pictured) said so many issues had arisen in the past few months that he was tempted to ask: when will the locust plague?

Inflation, or an increase in the cost of living, has recently moved away from the Bank’s 2% target, as staff shortages, supply chain bottlenecks and energy prices Scorching hots have combined with soaring demand since the lockdown ended.

The Bank acknowledged last week that inflation could exceed 4% by the end of the year, potentially adding hundreds of pounds to household bills and shopping carts.

Economists were counting on a strong economic recovery, rising wages and the return of the unemployed to work, to help balance rising prices.

But at the Society of Professional Economists’ annual dinner, Mr Bailey said: “The recovery has slowed and the economy has been rocked by further shocks.” He said the shift from spending on goods, when people were locked up, to going out and splashing money at restaurants and other experiences “has not yet happened on the scale expected.”

He added: “Meanwhile, supply bottlenecks and labor shortages have weighed on production and continue. Indeed, the number of major supply bottlenecks appears to be increasing. I must say that when I heard that we were suffering from a shortage of wind to generate electricity, I was tempted to ask, “And when are the locusts due?” “

The bank (pictured) admitted last week that inflation could exceed 4% by the end of the year, potentially adding hundreds of pounds to household bills and shopping carts.

The Bank (pictured) admitted last week that inflation could exceed 4% by the end of the year, potentially adding hundreds of pounds to household bills and shopping carts.

A series of recent problems have exacerbated inflation and hurt economic output. A staff shortage – due to some on leave or insufficiently trained training for in-demand roles such as truck drivers – has forced some companies to spend significantly more on recruiting. And a surge in demand for a range of materials, from high-tech semiconductor chips to steel as manufacturing activity picked up, pushed prices up.

Supply shortages and shipping chaos have also pushed up energy and fuel prices. Mr Bailey said: ‘A number of these bottlenecks are obviously not a product of Covid, although others are. It is also possible that the economic fragility created by Covid has amplified the impact of other shocks – either that or the gods are really against us. I think Covid is more likely to amplify at work.

He confirmed that in the “medium term”, interest rates will have to rise to bring inflation under control.

The bank cut its base rate to 0.1 percent last year. If reversing this trend could help control price increases, economists fear it could dampen the recovery.

The governor said many factors contributing to the price increase would be “transient”. But in a grim warning, he said: “The recovery is weakening. Much therefore depends on how efficiently supply capacity is rebuilt and over how long, and how the labor market evolves. really difficult sites.

A cry of alarm in perilous times

Commentary from Alex Brummer, City Editor

Andrew Bailey isn’t known for his colorful frills – although he’s once watched a grizzly bear in his family’s Idaho retreat.

When the normally taciturn Governor of the Bank of England wonders aloud before an audience of seasoned economists, “When are the locusts due?” »You have to worry.

The Bank had hoped that with much of the country vaccinated and official interest rates maintained at a record 0.1%, production would return to pre-pandemic levels.

When the normally taciturn Governor of the Bank of England wonders aloud before an audience of seasoned economists,

When the normally taciturn governor of the Bank of England wonders aloud, in front of an audience of seasoned economists, “when are the locusts coming” one has to worry

But it doesn’t happen like that. As Bailey observes, the “tough jobs” are yet to come. Much of the economic growth has been stunted. Despite a boom in dining out, as the public relaxes after Covid-19, there have been huge unexpected disruptions.

The energy crisis is a problem. But supply chains are at breaking point in everything from wood and steel to essential semiconductors to modern cars. This caused a break in construction and manufacturing.

The message from the Bank’s own officials, who are taking the temperature of the regional economy, is that these bottlenecks are getting worse.

They weigh heavily on economic expansion. And with the shortage of wind to generate electricity, Bailey is also starting to think that the gods are against us. The Bank now fears that its hopes of returning to pre-pandemic levels may soon be postponed.

The energy crisis is a problem.  But supply chains are at breaking point in everything.  The message from the Bank's own officials, who are taking the temperature of the regional economy, is that these bottlenecks are getting worse.  Pictured: broken signs in fuel pumps, September 2021

The energy crisis is a problem. But supply chains are at breaking point in everything. The message from the Bank’s own officials, who are taking the temperature of the regional economy, is that these bottlenecks are getting worse. Pictured: broken signs in fuel pumps, September 2021

As if that weren’t enough, Bailey and his fellow Threadneedle Street interest rate adjusters have other puzzles to face.

The job market is at an inflection point with the 1.7 million people on leave in July expected to swim or sink when they exit the program at the end of this week. This is at a time when job vacancies are at an all-time high of a million.

With so many moving parts, including the shortage of life-saving logistics and truck drivers, it is virtually impossible to know what the underlying labor market situation is and how best to set the policy to avoid soaring unemployment. .

We live in perilous times and Bailey, who is not often heard, is sounding the alarm bells.  Such uncertainties are not the ideal backdrop for Chancellor Rishi Sunak's budget (pictured) and the multi-year spending review slated for next month

We live in perilous times and Bailey, who is not often heard, is sounding the alarm bells. Such uncertainties are not the perfect backdrop for Chancellor Rishi Sunak’s budget (pictured) and the multi-year spending review slated for next month

The other big issue is deciding whether the Bank’s forecast of 4 percent plus inflation for this year (double the official 2 percent target) is transitional – as has largely been its position so far. now – or more persistent.

With soaring energy prices and the explosion of competition for skilled labor, it increasingly appears that the public expects more inflation, which will cause prices to rise. . If so, the Bank will have to react – and that will mean raising interest rates sooner than Bailey would like.

A stuttering recovery could be badly damaged or even reversed by a rise in interest rates, even from current lows.

We live in perilous times and Bailey, who is not often heard, is sounding the alarm bells. Such uncertainties are not the ideal backdrop for Chancellor Rishi Sunak’s budget and the multi-year spending review slated for next month.


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