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“I BECAME governor on March 16 last year. Timing is everything as they say,” Bank of England head Andrew Bailey recalls.

That was the day Boris Johnson told people to work from home if possible and to avoid pubs, clubs and theatres.

“My first week as governor, we had an absolute meltdown in financial markets, we had to do major intervention by the Monetary Policy Committee and it was the last time I saw most of the staff. Apart from that, it’s all been normal," Mr Bailey said.

“And then the economy fell by 20 per cent in one quarter.”

The Daily Echo had the chance to question the governor about some of the economic issues that affect us all - like jobs, recession and when we can hope for a recovery.


How bad will it get? And when will things improve?

Bournemouth Echo:

How spending has fallen since the start of the pandemic. Source: Bank of England

The UK has suffered the kind of shock that very few people could have imagined, with large parts of the economy shut by government order.

The governor notes that the impact of the second lockdown was not as severe as the first.

“We saw the economy go down by 20 per cent effectively in the second quarter last spring. It recovered then in the summer about half of that. Fourth quarter, interestingly, we had the second lockdown which didn’t have as big an effect and most of the data and evidence we have for the fourth quarter now suggests it was stronger than we thought it would be.

“Obviously we’re now in the third lockdown, which is a more substantial one and we do expect a negative quarter but not in any sense like the one we had in spring of last year.”

Mr Bailey has suggested the economy could rebound dramatically as the rollout of vaccinations progresses.

He says much will depend on how strongly spending returns when the restrictions are eased.

“There is quite a build-up now of saving in the economy. We estimate that between March and November last year, the unanticipated increase in saving beyond what we would have expected normally was probably about £125billion and it may go up by about as much again before we get out of this.

“Now, £125bn is about 10 per cent of annual household consumer spending, so not trivial.”

Those savings are not evenly distributed, he says. More of that money is in the hands of the elderly and the already better-off.

“But the big question of course is what are they going to do? How much are they going to spend in one period? How much are they going to save? We don’t have really many pandemics to go on, to judge that by. We’ve been quite cautious in our assumptions as bankers.

"That tends to be in normal times a section of the population that doesn’t have a high propensity to consume out of wealth but it may be different. It is very unusual.”


What are the prospects for jobs?

Bournemouth Echo:

There were 1.7million people unemployed in the last quarter of 2020, or 5.1 per cent of the working age population. The majority were under 25.

In the BCP Council area, the “alternative claimant count” – the number of people claiming Universal Credit because they were unemployed – stood at 14,826 at the end of 2020, up 143 per cent on the previous year. In the Dorset Council area, the figure was 9,064, up 147 per cent.

10,000 more unemployed and on benefits in Dorset

Among people aged 18-24, the count stood at 2,470, up 220 per cent year-on-year, in BCP, and 1,564, up 205 per cent, for the Dorset Council area.

Bournemouth Echo:

The number of people in employment has fallen drastically in the pandemic. Source: Bank of England

Those of us old enough to remember the 1980s will recall a nation with three million people unemployed – and although Dorset got off lightly compared with the north of England, it suffered quite badly enough.

But Mr Bailey believes the impact on unemployment of this recession will not be as profoundly long-lasting.

“In the 1980s, we saw some pretty wrenching structural changes in the economy from a heavy industry, mining, heavy manufacturing economy to something nearer to what we have today over time and that created a lot of what economists tend to call structural unemployment,” he said.

“And the problem with structural unemployment is it becomes long term because people need to get new skills. Also you had a much more geographical concentration of heavy industry and mining, shipbuilding and so on.

“I don’t think that’s going to happen this time and I think we’ve obviously got more of a services economy.

"I would expect a lot of it to come back but some of it won’t because habits will change. You look at online shopping, you look at working from home, there will be changes but I think the skills will be more transferable. I think we will have to invest in training but I don’t think you’ll see the dislocation that we saw in the 80s.”


How badly will businesses be dogged by debt after a year of Covid?

Bournemouth Echo:

Chancellor Rishi Sunak unveiled government-backed loans for businesses

Businesses have been racking up debt since the Covid crisis began.

Much of the chancellor’s aid has been in the form of government-backed loans and many businessses are also behind with rent and payments to suppliers.

The accountancy firm EY said in February that businesses had been taking on debt at more than twice the normal average growth rate and were on course to have borrowed £61bn by the end of this year.

Not only will they need to pay that back, but those repayments are money that cannot be invested into expansion.

“I very strongly support what the chancellor has announced in terms of spreading out the repayment period for these loans,” Mr Bailey said of the Bounce Back Loans and Coronavirus Business Interruption Loans.

These loans “spread the impact of Covid”, he said, whereas trying to absorb the cost in one year “would have been absolutely unbearable”.

“Companies will need a lot of help. It will take a lot of care and successful business management to do that,” he said.

“What I do think is critically important is that we raise the level of investment in the economy and therefore raise growth in the economy because for all debt, whether it’s private debt or public debt, it would be easier to service if we can raise the level of growth year on year in the economy.

“We’ve had very weak investment now for 10 years. I think it’s critically important that we raise that. Now we’ve got big opportunities.

“Climate change is both a challenge and an opportunity. It’s a challenge because you’ve got to do it, it’s critically important, but it’s also an opportunity because it’s going to require investment and that will raise the rate of growth.

“Businesses that are, I’m afraid, going to come out of the Covid period with higher debt will find it easier to service and repay their debt in an economy that’s growing more strongly and the same is true for the government as well.”


Will Dorset lose financial services jobs because of Brexit?

Bournemouth Echo:

JP Morgan in Bournemouth

Bournemouth and Poole have 18,000 jobs relying on the financial services sector, according to the industry group City UK in 2019.

Nobody would suggest they are all vulnerable to Brexit, but there has certainly been plenty of concern that Britain has left the European Union without arrangements to keep the financial services sector trading with continental Europe as it did before.

18,000 jobs in Bournemouth and Poole rely on financial services

JP Morgan provides around 4,000 jobs in Bournemouth. Its chairman and chief executive, Jamie Dimon, visited its Chaseside site in 2016 and warned of anything up to 4,000 job losses if Britain left the EU.

Jobs at risk: JP Morgan boss’s stark warning to Bournemouth staff over Brexit

“What we’ve actually ended up seeing so far in terms of numbers of jobs has actually been quite a bit less than some of the numbers that were estimated just after the referendum,” Mr Bailey said.

But he added: “It’s not over. I don’t think we should regard it as over at all, but nor do I think we should for a moment accept that this is the end of the road because it isn’t.

“The UK is a global financial sector, not a European financial centre. There are very good reasons why financial firms are based here. Concentrations of skills, there are concentrations of services, there’s a legal environment that financial firms like to operate in and centres like Bournemouth have been very successful. It’s a very successful, clearly, operation that is providing those services so there is every reason why that should continue.”

But the governor has been fairly blunt about the possibility that the EU will apply pressure to move banking activity related to the euro into the eurozone group of countries.

“This has been an agenda for at least 20 years,” he says.

“But we can’t ignore the fact that there will be attempts to try and get business from the rest of the world to migrate and there’s no reason why we should wish to accept that.”


What are negative interest rates and are they going to happen?

Bournemouth Echo:

Interest rates plunged in 2008 and have fallen to 0.1 per cent during the pandemic. Source: Bank of England

The Bank of England may have alarmed people by asking banks and building societies to prepare for the possibility of negative interest rates in six months.

The Bank’s current rate is already only a shade above zero at 0.1 per cent, which is a help to borrowers but painful to savers.

With an economic recovery expected, Mr Bailey is keen that people should not go thinking negative interest rates will happen.

“Let me say again there is no plan for the Bank of England or the Monetary Policy Committee to introduce negative interest rates. It’s not something we’ve discussed as a policy decision and we’ve got no plan to,” he said.

“Our central forecast of the economy going forward, that we produced in our February inflation report, in my view would not require negative rates.

“However, there are obvious risks. We’re still in a world of risks. Covid could come back and we could get variants of Covid, for instance, so we regard it as essential that we have tools in the box, as it were, that we can use if need be.”

With interest rates so near zero, and the bank having already tried other measures to boost the economy, the bank has had to think about what it could do if it encountered “a further substantial downturn”. The idea of asking banks to prepare was to make sure their technology could handle negative numbers, he said.

Fortunately, negative interest rates do not necessarily mean that your bank balance will be going down without you touching it.

They have been imposed in other countries on the reserves that commercial banks hold with the central bank – a way of getting banks to lend some of their excess reserves rather than sitting on them.

“It’s important that some countries already use negative rates. The euro area does, Sweden has, Denmark does, but hardly any of them have used them on retail, on people’s deposits,” said Mr Bailey.

“They use it more for big corporate and wholesale deposits, so it’s not a world that’s been used for households. I can understand why that’s sensible.

"I think it’s very hard to explain to households, people, who I feel quite naturally would think ‘I’ve always thought I deposit my money with you and you pay me something for doing so, now you’re telling me I deposit my money and I have to pay you for the privilege’ and I think that’s pretty hard to get your head round.”


Bournemouth Echo:

Andrew Bailey, governor of the Bank of England

As luck would have it, the Covid crisis arrived to challenge a new chancellor (Rishi Sunak had been in post barely a month) and a new Bank of England governor. But then, no one alive has experience of a challenge so huge and unexpected.

“I’ve had a lot of experience in the central bank, 36 years this year since I joined,” said Mr Bailey.

“I had a big role in the financial crisis 12 years ago but this one is completely different, I have to tell you. It’s completely different in terms of its effect but also in terms of the impact it’s had on us and everybody’s organisation, not actually seeing my colleagues – I talk to them a lot, obviously.

“It’s been interesting, put it that way.”