Why so glum, Mr Carney?

The Bank of England Governor said that the UK economy is slowly returning to normal earlier this week. To borrow Mark Carney’s football analogy, the recent growth we have experienced is like “making it through the qualifying rounds of the World Cup”, which is an achievement, but not the “ultimate goal”. The real tournament, according to Carney and company, is only just beginning.

It’s coming home, it’s coming home…
To stretch this analogy a little further, will the UK economy get knocked out in the last 16, or can it dream to make it to the semi-finals, or even the finals?

While Mark Carney sounded less optimistic about the UK’s economic prospects, if the economic World Cup was played by the members of the G7, then the Organisation for Economic Cooperation and Development (OCED) is rooting for us to win. It has predicted that the UK’s growth this year will be faster than any of its peers. If only we could be as lucky in football!

The Jose Mourinho of central bankers
Putting aside the fact that Carney is a Canadian, and thus may not be rooting for England to win anyway, why is he so downbeat? Is Carney actually worried about our prospects, or is he the Jose Mourinho of the central bank world, always downplaying his team’s chances?

Carney is right to urge some caution. Our economy only returned to its pre -2008 size last month, which means that we basically had 6 lost years with lost output and jobs. The economy is still unbalanced, we borrow too much, don’t export enough and now there is a threat of a housing bubble.

Is good news just bad news in disguise?
Even the good news, for example the labour market, is laced with a sour after taste. The record number of jobs being created, according to data from the Office of National Statistics, is partly down to a surge in the number of self-employed.

While an entrepreneurial spirit is to be encouraged, the fear is that rather than setting up the next Apple or Google, these self-employed people are becoming consultants or freelancers, or worse, working on zero hours contracts, after being laid off. They are unlikely to hire anyone else and their jobs are not secure with no pensions or sick pay.

This is the new normal – no longer a job for life, or even a week these days. Although wage growth is moving higher, it stalled last month, and hasn’t made much headway above the rate of inflation. As we move through the qualifying stages of the economic tournament we are playing in, higher wage growth is necessary to get us to the final.

[30m jobs and the economy still isn't fixed]

Why low rates hurt all of us
Our only chance of being triumphant ultimately comes down to interest rates. We won’t become economic champions with interest rates of 0.5%. Mark Carney and co are in no hurry to raise rates, and have said that when they do start to hike the rise in interest rates will be steady and gradual. Thus, the new normal is one where our economy is considered too weak to have “normalised” rates of interest, hardly the stuff of champions.

Low interest rates aren’t actually that good for anybody.  They don’t particularly benefit house buyers, especially first time buyers, as the banks just add punitive new rules to mortgage lending, like 25% deposits and reducing the amount you can borrow because of that expensive gym membership you never use. Most of us are also hit hard by low rates. Pensioners have lost out due to pitiful annuity rates, and those trying to save for a rainy day, or for a deposit for a home, have suffered years of paltry returns.

While the Bank may think that low rates will secure us that all-important place in the final, it could be argued that this will hinder our path to the “ultimate goal” and raising rates could have more benefits than costs. 

To get us over the line, maybe management (aka the Bank of England) need to start taking risks, otherwise the next sporting analogy used by Mr Carney could be even more downbeat.

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Kathleen Brooks is author of Kathleen Brooks on Forex, published by Harriman House.