Russell Lynch: Bank of England can’t afford to pull its punches

WHEN crisis strikes, “plan beats no plan”. So said former US treasury secretary Tim Geithner, and this line was borrowed after the referendum vote by our own Bank of England Governor Mark Carney.

What’s more, Carney added, “in my experience, a plan that is clearly articulated and transparently executed is best of all”. While Westminster descended into bloody Jacobean drama after the Brexit shock, Threadneedle Street played the adult and stretched every sinew to reassure financial markets.

Until lately, anyway. Some City economists express concern over mixed signals from the central bank. Consider the following: on June 30, Carney stressed that the “economic outlook has deteriorated and some monetary policy easing will likely be required over the summer”. Then after stirring the markets up, the monetary policy committee failed to deliver, even though it talked up an August move. The pound promptly shot up on lack of action. After that, chief economist Andy Haldane gives a speech on his preference for the monetary policy “sledgehammer” to crack the nut, and Gertjan Vlieghe — the only one of the nine-strong MPC to vote for a cut last week — talked about a “package of additional measures” needed.

Enter Martin Weale: the economist, who’s been an occasional committee hawk, sets a higher bar to a cut than his colleagues. He argues there are no signs of panic among consumers and businesses — and also warned sternly that the Bank “is not a nurse to markets”. Though the MPC may occasionally “give an indication of where policy may go”, he added, “that is no more than the best judgement at the time and not in any sense a commitment; the public understand that”.

Weale (aside from his heroic assessment of the public’s appreciation of the nuances of MPC communications) is wide of the mark here. Let’s remind ourselves of the text of the MPC’s decision: “Most members of the committee expect monetary policy to be loosened in August. The committee discussed various easing options and combinations thereof.” Now we can take it that Weale isn’t among the “most members”, but if that statement doesn’t constitute a commitment, I don’t know what does. Certainly it’s far more than an “indication”, as Weale puts it. If the Bank sits on its hands again in August — surely unthinkable — the entire episode will be up there with some of the biggest monetary policy clangers of recent years.

Former MPC member Sushil Wadhwani, who spoke after Weale at this week’s Resolution Foundation conference, said not cutting was a mistake. “As a committee member, it’s always tempting to wait; there’s always more data you’re going to get, there’s always more research. The temptation to wait should be strongly resisted.”

Part of the trouble is a lag in our official data: this week’s jobs figures for the quarter to May, which showed unemployment at a decade low, are virtually useless in setting post-Brexit policy. But reports from the Bank’s agents showed “a negative effect overall on hiring activity over the next 12 months”. Deloitte’s own survey of finance chiefs shows uncertainty soaring, business optimism tanking and “a significant damping effect” of Brexit on their own spending.

These signals are too strong to ignore. The Bank should probably have cut last week while preparing a broader stimulus package — £100 billion quantitative easing, say — for August. If economic mayhem fails to arise, the MPC can take the foot off the gas. But if the Bank makes a mistake in the months ahead, it will be by doing too little, not too much.