BOE speech by Andy Haldane

[JamesMuenchen]

Quite an interesting speech from the BOE's Andy Haldane entitled Avoiding Economic Anxiety
https://www.bankofengland.co.uk/-/media ... 498D6FE5BA

On GDP:
the economy began its recovery from this dramatic fall earlier, and has since recovered far-faster, than anyone expected. The speed and scale of the UK’s recovery has surprised to the upside, persistently and significantly, for at least the past four months. Back in May, the Bank expected GDP to be around 18% below its pre-Covid level on average during the third quarter. Consensus forecasts by professional economists were, at the time, weaker still.

Four months on, we now expect GDP to be around 3-4% below its pre-Covid level by the end of the third quarter. In other words, the economy has already recovered just under 90% of its earlier losses. Having fallen precipitously by 20% in the second quarter, we expect UK GDP to have risen by a vertiginous 20% in the third quarter – by some margin its largest-ever rise. Put differently, since May UK GDP has been rising, on average, by around 1.5% per week.

On spending:
But the pace of release from lockdown in the UK has in fact been broadly in line with what the Bank had expected in May. The biggest surprise has been the robustness of peoples’ spending behaviour in the face of lockdown constraints and other risks, not the evolution of these constraints and risks per se.
The behaviour of UK consumers has been most surprising. Based on our suite of fast indicators, UK consumption has been rising by, on average, around 2% per week since May.
As best we can tell, consumer spending now stands at around pre-Covid levels. In other words, consumption has fully recovered more than a year earlier than the Bank expected as recently as August. Large-ticket purchases, such as cars and houses, are also back to around pre-Covid levels.

On sentiment:
A particularly revealing episode is associated with the notable spike in the pessimism ratio on the 12 August.
This was when the Office for National Statistics published second quarter GDP figures for the UK. These showed a huge fall of over 20% in GDP, the largest quarterly fall on record by far. This, understandably, was one of the top three new stories on the day.

Yet the irony is that the only news in this release was GDP growth for the month of June, the final month of the quarter. This saw an almost 9% rise in activity, by far the largest rise in any month ever and above market expectations. Yet negative media headlines outnumbered positives by many multiples. Positive economic news was media-filtered into an extreme negative event.

This filtering of good news, and accentuation of the bad, is a familiar pattern of human behaviour at times of stress and uncertainty. Psychologists call it “catastrophizing” – discounting the best and fixating on the worst, whatever the balance of risks. It is a well-known problem among people suffering anxiety or depression. Economy-wide, the result has been collective dread risk, fanned by contagious pessimism.

[odysseus2000]

I am guilty as charged.

mea culpa mea maxima culpa

I love it when I proved totally wrong and things are much better than I expected.

Regards,