LONDON (Reuters) – Overly pessimistic views about the coronavirus crisis risk holding back Britain’s economy after its COVID-19 lockdown shock, Bank of England Chief Economist Andy Haldane said on Wednesday.
“Encouraging news about the present needs not to be drowned out by fears for the future. Now is not the time for the economics of Chicken Licken,” Haldane said in a speech, citing a folk tale about a chicken who worried the sky was falling.
Haldane, the most upbeat of the BoE’s interest rate-setters this year, said “catastrophising” by policymakers raised the risk of it becoming a self-fulfilling prophesy.
He also said none of the conditions that would justify taking interest rates negative had been met.
Work by the BoE to assess if negative rates are feasible would take several months, followed by an assessment on whether more stimulus was needed and whether negative rates were the best way to provide it, Haldane said.
Before the pandemic, the BoE had ruled out cutting interest rates below zero. But new Governor Andrew Bailey has been more open about the possibility and a debate about their suitability is opening up at the central bank.
Haldane acknowledged that Britain faced an “unholy trinity of risks from COVID, unemployment and Brexit” but it was important that the economy’s quicker-than-expected recovery, so far, from the lockdown was not overlooked.
“My concern at present is that good news on the economy is being crowded out by fears about the future,” he said in an online presentation to a business group in northwest England.
“This is human nature at times of stress. But it can also make for an overly-pessimistic popular narrative, which fosters fear, fatalism and excess caution.”
Haldane criticised media coverage of economic data released in August, which showed a record 20% collapse in output in the second quarter, most of it in April when the lockdown was at its height.
Reporters should instead have focused on figures released at the same time which showed strong growth in June, he argued.
“Positive economic news was media-filtered into an extreme negative event,” he said.
The Office for National Statistics also focused on the quarterly numbers when it published the data.
Haldane forecast 20% quarter-on-quarter growth for the economy in the third quarter, leaving output 3% to 4% below its pre-COVID level by the end of September.
This — alongside finance minister Rishi Sunak’s decision to extend some labour market subsidies — meant the jobless rate might not rise as high as the 7.0% to 7.5% forecast by the BoE in August, though new lockdown rules could outweigh this, he said.
Writing by David Milliken and William Schomberg, editing by Larry King