ALEX BRUMMER: Bank of England needs a reboot

When the Bank of England became independent in 1997, the great ambition of lenders Ed Balls and Gordon Brown was that it would become an economic and monetary powerhouse, as respected as the German Bundesbank.

In the era of the European Central Bank (ECB), the Bundesbank lives in the shadows, yet remains the voice of sound money.

No one disputes where German monetary policy stands, even if it can be drowned out by other ECB voices.

The British central bank indeed became an economic force and much of its work has a high reputation. But it’s hard to know what it stands for.

As an inflation-fighting machine, it lost perspective after the financial crisis and during the pandemic. It continued to maintain emergency interest rates and print money after inflation erupted in 2021, despite warnings from then-chief economist Andy Haldane.

Governor Andrew Bailey’s well-meaning economic interventions were welcome at the onset of the pandemic. It was Bailey who was the first to recognize the need for a corporate guarantee scheme to prevent long-term damage to trade. The mission sneaks into protecting jobs and distorting corporate decision-making. The Bank’s network of agents, which feeds information from the regions to the interest-setting Monetary Policy Committee (MPC), is a force to be reckoned with.

Nevertheless, when the Bank makes its big forecasts in the Monetary Policy Report, as it most recently did in November, the Bank seems to pay little attention to the real economy and is driven by mechanical models and forecasts. It was in November that it made its alarming, headline prediction that a hard squeeze on real incomes would lead to a two-year recession – the longest in history.

It has yet to be proven correct (one hopes it isn’t), but there were all sorts of real world events and datasets to challenge his claim. No one understands exactly how a full-employment recession works. What is undoubtedly true is that private sector employers, desperate to retain skilled colleagues, are finding ways to pay them better in an environment of inflation. Devices such as one-off payments and bonuses ensure that purchasing power is maintained.

Meanwhile, visitor numbers in our high streets and retail parks showed that people were going to shops.

Instead of retreating, as the Bank had predicted, the economy even grew by 0.1 percent in November.

Judging by the staggering sales of the biggest grocers and fashion chains over the Christmas season, there’s no technical reason (other than the bad days of the holiday season) to think we should be gloomy about consumer spending or the perky service sector.

The concern is that the Bank’s talk of a recession is reinforcing negative thinking among consumers and businesses. There is good reason to believe that it is already having an impact on business investment.

This week there was a nag from Bailey, reinforced by his counterpart at the US Federal Reserve, Jay Powell, that because central banks are now dealing with a variety of social issues – ranging from climate change to inequality – it could distract from the core task of lower prices. Central banks really should be asking themselves how they got inflation so wrong and have they ever thought about the consequences of printing excess money for so long?

Should they rethink their whole approach to forecasting and let the more hands-on world of the regional agents and real-time data impact thinking more?

And has the “groupthink” of the Bank and former Treasury insiders on the MPC led to sloppy decision-making?

These are issues that the court (the bank’s non-executive council) and the Treasury Select Committee should investigate.

Channel hopping

ITV’s launch of streaming service ITVX and a £160m increase to its content budget for 2023 was greeted with a huge raspberry by the stock market in March last year. The shares were down 18 percent. Chief executive Carolyn McCall stood her ground and the streaming service, which combines ITV Hub, ITV Hub+ and Britbox UK, is off to a flying start.

ITVX increased streaming hours by 55 percent and is attracting advertisers despite industry concerns that the recession could take a major hit to commercials. It may not be Netflix, with its multi-billion dollar production budgets, but UK viewers know what they like.