Haldane has been the Bank's chief economist for over 30 years and one of its most outspoken representatives. Photo: Jeff Pugh
Andy Haldane went smart casual today. This is no ordinary office ensemble for the former chief economist at the Bank of England. Leaning back on a brown leather sofa, a starched white collar sticks out of a gray zip-up hoodie, making him look as ready for the gym as he is for the boardroom.
Speaking to me from his holiday home on the Kent coast, he apologizes for not being able to attend the interview in person. “Today is very unusual for me because I usually go there every day,” Haldane says in a lighter version of his Yorkshire accent.
Now he is the executive director of the Royal Society of Arts think tank, and he is a mile away west of Threadneedle Street, where Haldane became one of the first Oxford University graduates to join the Bank of England Fellowship Program in 1989.
In a career spanning 32 years, he has risen through the ranks to become Chief Economist in 2014. He held the position until his departure in 2021, which was considered premature by some, who still bet that he will one day return to the top position.
In his farewell speech at Haldane Bank, who turning 56 this week, said he promised himself one thing when he joined the Old Lady: he would stay at the Bank «only as long as it was interesting.» .
“The collapse in real wages in the UK is astounding – we are facing two lost decades of wage growth.” Credit: Jeff Pugh
He's had a lot of interesting work since then, including briefly chairing a government upscaling task force. Haldane also sits on Jeremy Hunt's board of economic advisers and agreed last year to spearhead Labour's «regional growth» plan.
All of these roles have made it dramatically easier for Haldane to have the UK worry about what he's doing. describes the economy as «fritters.»
«It's stuck. The economy is stuck. In terms of growth, it's been treading water for at least a year. And looking ahead, if forecasts are to be believed, it looks like the coming months quarters it will pretty much get stuck.”
The outlook looks bleak indeed, as the chancellor is forced to report a 0.2% quarterly gain in the three months to June. It may have been more than expected, but the UK is still the only G7 economy that has not recovered to its pre-pandemic size. The National Institute for Social and Economic Research (NIESR) does not think it will reach this milestone until 2024. In comparison, the US economy is already 6.2% larger.
A low growth trap? – UK GDP growth, % change year-over-year
For Haldane, the problems began long before Covid. “We have a combination of growth stuck at the macro level and inflation remaining too high, and this is an uncomfortable background in the short term.
“But this is happening against an even more uncomfortable background of growth that was anemic, going away rooted in the global financial crisis over the past 15 years, and real wages have largely remained unchanged over that period and are unlikely to recover or surpass their global financial crisis heights for some time to come. .
“This collapse in real wages has been astounding. In other words, in May 2023 the average gross wage was £497 per week in 2015 prices. In real terms, this is 3.7 per cent less than in May 2008, when it was £516. The UK is currently facing two lost decades of wage growth.»
Haldane says there hasn't been such stagnation for young workers since the 19th century, when hand weavers, who accounted for up to 10% of the male workforce, were replaced by machines, driving costs and wages down dramatically.
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«We're seeing stagnation , and in some cases a decline in young people's real wages since the financial crisis, meaning that this cohort saw real wages tracked below their parents on an age basis for the first time in 150 years.”
Haldane, a father of three, is now worried that the social progress we've been accustomed to for over a century has stalled. Take the basic principle that children should be better off financially than their parents. For centuries this eternal progress has been a given. But today's youth understand that this is no longer the case. Haldane believes that this is fraught with serious consequences.
2406 retirees. Wealth
“This income insecurity is exacerbated by tenure insecurity, and we are seeing a sharp drop in the number of homeowners for this cohort,” he says.
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“For baby boomers, by age 30, the chance of them owning their own home was about 50:50, which is likely doubling the ratio their parents and grandparents would have faced in terms of templates. home ownership.
“Today we see that a 30-year-old person has a probability of owning a house about one in five. So, there was a massive retreat. You have to go back to the pre-World War II silent generation with the same low levels of home ownership.”
Millennials are increasingly referred to as the rent generation, or more specifically, the stay-at-home generation. The number of young people living with their parents has risen from 2.4 million in 1999 to just over 3.4 million in 2022, according to the Office for National Statistics (ONS). ).
31 percent of all men aged 20-34 now live with their parents, up from 26 percent in 1999. Most of this increase has occurred since the financial crisis of 2007-08.
0608 More children live with older parents
Therein lies the rub. “Financial insecurity is exacerbated by housing insecurity, which is exacerbated by Covid,” Haldane says. «They really planted the seeds of what I consider to be some of the mental health problems young people face.»
Haldane says addressing these issues quickly should be a policy priority. “We don't invest enough in the mental health of young people. So much money in the National Health Service goes to the physical health of older people, not the mental health of young people.”
Haldane, who insists he remains optimistic about the economy, says more needs to be done more. done to boost the overall workforce.
He notes that we've seen rapid growth lately. For example, in the 2010s, under former Chancellor George Osborne, the UK working-age employment rate rose from 70% to 77%, offsetting relatively meager productivity growth over that period.
«There's a huge opportunity here, and we know it's there,» says Haldane. “Before Covid, we saw a huge increase in labor force participation, especially for women and the elderly. So we know it's possible.”
The pandemic abruptly and abruptly halted this trend, with the number of people who gave up looking for work altogether rising by almost 650,000 at its peak. Today, the working-age inactivity rate remains 350,000 above pre-pandemic levels.
Employment status in the UK
Prolonged illness was the main reason. The ONS previously estimated that around 40,000 more people will become economically inactive between 2019 and 2022 due to long-term illness as the UK population ages. In fact, there were 462,000 — more than ten times more.
Haldane welcomes some of the steps taken by the chancellor in the March budget to stop layoffs and get more people back to work. But more needs to be done, he says.
“What we saw in the light of Covid bears some resemblance to what we saw in the financial system in 2008-2009, when the main problems in the complex system enters an unstable state due to a strong impact.
“During the financial crisis, it was a subprime mortgage. For the healthcare system, it was Covid. And this has indirect implications for labor force participation and productivity, which have major macroeconomic implications. In fact, for the first time in about 200 years, health problems are hindering growth rather than growing the workforce.”
This is a blow to growth – that’s why Haldane says more needs to be done to keep people over 50 years in the labor market. Two-thirds of the recent increase in inactivity was due to this age group: some due to early retirement, some due to ill health.
Haldane says he has taken a close look at the 1.034 million open positions currently in the UK. Real estate and mining have seen the fastest growth since the start of the year.
“I was wondering how many of these jobs would be suitable for people over 50 and 55? Even over 60? And the answer is not very much. The problem is that in our job market, our companies have not expanded their job offerings enough to meet the needs of those who are older.”
In addition, politicians and companies need to move towards “a different kind of social contract between employers and employees for workers in this age group.”
While he praises the chancellor for some of the steps he has taken in the budget, Haldane adds: “It takes two to tango. You also need the right jobs for this age group, and by that I mean jobs that can work flexible hours, jobs that require the right level of training. So if you're in your 50s and maybe your digital skills aren't quite on the cutting edge, you need to calmly get back to work.»
He believes the job market is still full of deeply rooted prejudice. against older workers.
“I think ageism is one of the few remaining acceptable forms of discrimination in the workplace. This is terrible for individuals and terrible for businesses that are now chronically short of staff and skills.”
Some companies recognize this. The Phoenix Group, one of the UK's largest savings and pension companies, has banned words like «energetic» and «enthusiastic» from job postings to avoid scaring away older job seekers. Keeping this age group employed has the potential to be of great benefit to the economy.
“If these people stay healthy and stay in the job market, the prize here is really big. We are talking about keeping people with experience in the workforce, people who have gained experience in order to keep them in the labor market. It's good for them, but it's also good for the economy. And now we don't.'
He adds with a smile: 'Quality of work and respect at work is crucial for slightly more experienced, slightly higher-ranking employees — a bit like me, actually.'< /p> 
Haldane was involved in 68 interest rate decisions as the Bank's chief economist. Photo: Sarah Lee/Ewine
Born on a Sunderland council estate, Haldane, the son of a housewife and professional trumpeter who toured seaside towns, grew up in Guiseley, a suburb of Leeds. His path to Threadneedle Street was due to growing up in the 1980s when he had three million unemployed people — a factor he previously cited as one of the main reasons he studied economics — first at Sheffield and then at the University of Warwick.
< p>Haldane has always been a trailblazer, even in his early days at the Bank. He created a new division for international financial stability, where he quickly led the domestic response to a default in Russia in 1998.
He was also the first to give a presentation to the founding members of monetary policy. Committee (MPC) after being granted operational independence by Gordon Brown in 1997. Bank staff were asked to give committee members a tour of the economy ahead of the interest rate decision, in a process that has not changed. many to this day.
Haldane, who was tasked with making the first presentation, had previously admitted to having a «nervous sac» as he addressed a smoky room when three politicians, including then-governor Lord Eddie George, burst into flames watching this fledgling analyst talk about health. UK economy. He pressed a button on his computer, hoping that a trial would begin, only to find that the entire system shut down, leaving the audience staring at blank screens.
He eventually got his way, getting so comfortable that he ended up on opposite side of the table, having participated in 68 interest rate decisions as the Bank's chief economist.
However, in his last meetings, he warned that the Bank was printing too much money and not providing enough protection against inflation. He was in the minority. But he was right. And, seeing early signs of rising inflation, today he believes the Bank is on the verge of throwing the economy into an unnecessary recession.
2,406 Ridiculous Money
“Given that growth starts near zero, it won’t be long before to plunge this economy into recession right now,” he says. “I still hope that this can be avoided. But if it did, if that pressure on households was significant, I think it would be hard to avoid the conclusion that it was a policy-driven recession.
“This was not the case in the case of previous shocks. This was not the case for the cost-of-living shock, which was largely an external shock. This was not the case with the Covid shock, which was an external shock. The same could not be said about the global financial crisis because it was an external shock. It would be different in that the recession would be caused by politics.”
He believes the British have only seen the «tip of the iceberg» when it comes to the impact of the previous interest rate hike, a warning that a «frightening» number of households are still facing a steep jump in mortgage payments — four million, by his own estimate. Bank.
Interest rates are currently at 5.25% and could rise even more depending on this week's wage figures, which Andrew Bailey hinted will determine the Old Lady's next move.< /p>
Inflation was 7.9% in June but is expected to drop to 6.7% in July, although still much higher than other G7 countries.
UK inflation
But Haldane believes that by the end of the year Inflation will no longer be «the number one scarecrow» and urges policymakers to think.
Haldane says he is pleased that the Bank has taken «three years, maybe even four years to bring inflation down to 2 percent in such a way that there is no risk of losing too many jobs or losing too many products or causing the recession that we have been talking about.
He defends this approach. «That's how the inflation targeting system was put together — and I was from the very beginning when it was designed — for situations like this,» he insists. “You don’t try to [return to 2 percent] chaotically on a normal horizon — say 18 months to two years — you give it more space, you increase the duration.”
“For me, the risk of letting the inflationary cat out of the bag in such a way that it jeopardizes the 2% inflation target is less of a risk than the risk of too much of a crisis in the economy.”
Looking to the future, Haldane still passionate about leveling up, delegating power, and increasing investment in the economy. He also suggests that Hunt should do whatever it takes to make the business tax break permanent, allowing every pound invested in IT equipment, plant or equipment to be fully deducted from taxable profits.
He also believes that the UK Fiscal Rules need to be rethought as current targets are too focused on «debt rather than net assets».
Labour seems to be listening. He proposed adopting a fiscal «own value» rule that would take a snapshot of the government's entire balance sheet — similar to how a company reports its accounts.
What about the biggest risk to the economy? After a long pause, Haldane says he believes the biggest risk is that politicians and the general public will simply accept that the lackluster past he describes has already determined Britain's economic future.
Expectations that this world persist, “can easily give rise to a kind of fatalism about the future, that we are somehow doomed to our fate. I don't think this is true. We can be masters of our destiny. There is a huge amount of hidden energy in the UK economy and local communities. I traveled for many years looking for him, he is there.”
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