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- The chief economists at the Bank of England and the European Central Bank are indicating that it may be time to back off from injecting massive amounts of economic stimulus into the economies.
- Trade indicators seem to suggest that the world economies and the UK have recovered earlier and “materially faster” than expected, according to Andy Haldane.
- ECB Chief Economist Philip Lane has a more cautious outlook. He said that although it may be too early to know what the economic trajectory will be like, it may be time to stop monetary policy in the coming months.
- Dealing with negative shocks, Lane said the European Governing Council in the past “pulled out, we reduced the asset purchase program, and we reduced asset purchases to zero when we thought we could.”
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Top policy makers in Europe this week seemed to indicate that it may be time to stem the flow of money meant to protect economies from total collapse.
While assessing the road to recovery, Bank of England chief economist Andy Haldane said this week that the UK economy has rebounded sharply compared to what was originally expected.
He attributed this to indicators such as closely watched trade surveys. It also joined strong consumer spending as a sign that households are now using the money they were forced to save during the start of the pandemic.
Haldane seemed even more optimistic that the opening of pubs, restaurants, hotels, movie theaters and other establishments on Saturday will do more to boost consumer spending, and highlighted reports suggesting that early bookings for these services are “fast.”
Last month, the Bank of England decided to add another £ 100 billion ($ 125 billion) of monetary stimulus to boost financial markets hit by the pandemic, a decision ratified by an 8-1 vote by the monetary policy committee .
The only dissenter was Haldane.
To explain his opposition, he said: “I judged that the upward news in demand since our previous meeting in May outweighed the negative news to the UK economic outlook.”
He wanted to maintain the monetary position rather than loosen it further.
He noted that there is a possibility that unemployment in the UK may worsen in the second half of the year as the leave plan narrows, ensuring further measures. But since this remains uncertain, it may not be a top priority.
Philip Lane, the chief economist at the European Central Bank, is more discreet about the recovery.
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In a recent interview with Reuters, Lane noted that the European economy will see a long period of positive data compared to the drastic lows seen in April.
“If it grows at the same rate or if we get an initial bounce and then level off, it won’t be that easy for us, or for you, or for the market to navigate or extract useful signals from the data,” Lane said.
He said that even in the case of a severe scenario, inflation in Europe would not be negative. But that doesn’t say much about what it will look like in the medium term.
In terms of negative shocks to the economy, Lane believes they are only temporary.
“My opinion is that some of those negative shocks cannot be sustained, some of them have the seed of their own disappearance,” he said. “I do not see that the world always has these negative shocks and that is why central banks have the ability to reverse course.”
Lane warned that it may be too early to know whether Europe’s economies are seeing a solid foundation, and that they can only return to pre-crisis levels by 2022.
The few weeks of seeing an initial bounce do not serve as a good guide to what can happen in winter.
However, both Haldane and Lane agree that it is time for central banks to withdraw and wait for more data to lead the next steps.
During his five-year tenure on the Governing Council, Lane said the central bank had “stepped back, we reduced the asset purchase program and reduced asset purchases to zero when we thought we could.”
Both central banks aim to wait before reading “noisy data” and hopefully extract useful signals from the post-crisis economy to make the next moves.
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