成人快手

Captain's update

• Evan Davis | Notes on Real Life |
• 14 Nov 07, 03:51 PM

Some quick thoughts on the ...

The economy is an aeroplane, and the captain (Mervyn King) has come across the tannoy with a rather complicated message. In essence, he said - "there's a bumpy ride ahead for the economy, but with a couple of rate cuts next year and a bit of skilful piloting, the economy can come through by 2010". I.e. - we'll be landing on time.

It's an interesting announcement by the standard of these things, but buried within it were a number of sub-lines, each of which deserves mention on its own.

Nightmares

Firstly, the governor wasn't ruling out some rather unpleasant scenarios. The plane shouldn't crash, but it could be a very bumpy ride indeed.

Personally, I'm glad he did not sound complacent on these possibilities.

My own personal view is that the famous fan charts the Bank publishes to present its economic forecasts offer a slight sense of false reassurance. They visually anchor one's gaze on to the most likely scenarios, when more attention should be given to the unlikely but far serious scenarios.

After all, there is unlikely to be a major plane crash today, but I nevertheless think the world's airlines should be very alive to the possibility.

But at least the governor's words were not designed to produce unjustified reassurance. He recognised the nightmare by which an economy can get trapped in a vicious circle of house prices tumbling, consumers slowing their spending very sharply, and the economy spiralling down with job losses and collapsing confidence.

And at the press conference, talk of recession was not dismissed as silly; an effort was made to show how the Bank's apparently benign forecasts do in fact allow for the possibility.

Spillovers

A second interesting message was that the Bank noted the spillovers from the credit crunch to the real economy have so far been rather modest. The governor spoke of a dichotomy between events in the city, in the housing market and in London, and the rest of the economy which has so far carried on producing much as before.

Or, to use my plane analogy - so far it's only passengers in first class that are feeling the bumps.

Mr King even pointed out that the financial sector in the city is perhaps a smaller part of the economy than generally supposed. Maybe that's why the rest of the economy has thus far escaped lightly.

Dilemmas

The third message I took from the press conference was the complexity of steering the economy through the turbulence it is now entering. Higher inflation next year, and slower growth. It's a tricky combination - it's the problem I described yesterday.

Using one control to keep the economy flying at the right speed, at the right altitude and in the right direction is a formidable task for any pilot.

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