Bailey’s outlook on Bank of England policies for 2021
‘The outlook is positive but with large doses of cautionary realism,’ Andrew Bailey, Governor of the Bank of England (BoE) said at a webinar hosted by the Resolution Foundation on 9 March 2021.
As effective Coronavirus vaccines lifted morale and gave Boris Johnson grounds for mapping out the end of lockdown roadmap, eyes now turn to Bailey for an outlook on economic recovery.
In its November 2021 meeting, the MPC predicted that spending and gross domestic product would pick up in early 2021 as restrictions loosen. But lockdown measures were still in place by the next March MPC meeting and are expected to continue in some capacity until June 2020 at the earliest.
While many have argued the easing of lockdown measures could keep interest rates above 0, the BoE has said that negative interest rates are in its arsenal of possible measures this year. Although Bailey made it clear in his speech that ‘Contingency planning for negative rates implies nothing about [our] intentions’.
The Bank is likely to encourage banks to keep lending to companies in 2021, as it has done repeatedly in 2020 – meaning Bailey will need to keep an eye on government-backed lending schemes and corporate debt levels.
It’s important to remember that Covid-19 isn’t the only consideration for Bailey and the Bank of England. Brexit is still weighing heavily on monetary policy decisions. While the Bank has said it would rather steer clear of any further economic stimulus, it could still result in quantitative easing schemes, such as buying more bonds and putting more money into the economy.
Climate change is also expected to be a big factor in UK economic decisions. The Bank of England has a stress test planned for summer 2021 to see how banks and other financial services institutions will cope in different climate catastrophe scenarios. But, as economic uncertainty continues, this could get pushed back into 2020.
Andrew Bailey’s first year as BoE Governor
On 16 March 2020, Mark Carney stepped down and Andrew Baily took the helm of the Bank of England. The handover happened just as the UK entered the worst economic downturn in nearly 300 years – including an equity sell-off within days of Bailey starting – due to the spread of Covid-19 that swept across the world.
Under Bailey’s new leadership, interest rates were cut to 0.1% - the lowest level in history – and bought bonds to an unprecedented total of £895 billion. Even without Covid-19, Bailey was predicted to have a philosophy of low interest rates and incremental growth. So, his guidance wasn’t unexpected at all.
Throughout 2020, the Bank of England’s Monetary Policy Committee (MPC) unanimously voted to maintain the Bank Rate at 0.1% and voted to maintain its stock pile of sterling non-financial investment-grade corporate bonds. Global GDP growth slowed in 2020 Q4, as a rise in Covid cases and subsequent lockdown restrictions continued to weigh on economic activity.
Bailey’s early career at the Bank of England
Before becoming the Bank of England Governor, Andrew Baily actually worked at the Bank from 1985 to 2016. During his time there, he worked in a number of different areas, most notably as the Chief Cashier from 2004 to 2011 – which means his signature is on literally billions of sterling notes that we use every day.
Bailey also dealt with the fallout of the 2008 financial crisis, in his role as Head of the bank’s Special Resolution Unit – which was in place to solve problems in the banking sector. This included several controversies, such as the Royal bank of Scotland’s treatment of small businesses, which would haunt Bailey’s career for years.
In July 2012, Andrew became Managing Director of the Prudential Business Unit, with responsibility for the prudential supervision of banks, investment banks and insurance companies.
In 2013, Bailey became Chief Executive of the new Prudential Regulation Authority, and the first deputy Governor of the Bank of England for Prudential Regulation. This role
Andrew Bailey at the FCA
Andrew Bailey quit his role as Deputy Governor in 2016, to become head of the City watchdog, the Financial Conduct Authority (FCA). During his time as CEO of the FCA, Andrew Bailey was also a member of the Prudential Regulation Committee, the Financial Policy Committee, and the Board of the Financial Conduct Authority.
Many believed his leadership of the FCA would reduce his chances of becoming BoE Governor, as he was viewed as extremely out of touch. The FCA had largely lost its reputation as a regulator and wasn’t seen as being able to bring financial services companies to heel.
A particularly well-document case was of Neil Woodford, a fund manager who managed more than $3 billion in equity income, which had to be frozen due to the sheer number of investors looking to move their money out of his fund. Bailey was slammed for saying that Woodford had broken the spirit, but not the letter, of the FCA rules.
But the most damning criticism against Bailey was his role in the 2019 collapse of investment group London Capital & Finance (LCF). More than 11,000 investors lost up to 237 million pounds ($329 million) from the collapse, and the government currently part of a legal process to provide compensation in certain cases. LCF was regulated by the FCA at the time, and a report by Elizabeth Foster described the FCA under Bailey as a ‘broken machine’.
Initially, the stains on his career meant he was passed over and the search moved on to other candidates. But as time went on, the Treasury returned to Bailey for the job, believing that his experience as a regulator would help him in the BoE’s new a dual role: setting interest rates and overseeing the financial services industry.
In December 2019, it was announced that Andrew bailey would be succeeding Mark Carney in March 2020.