The governor of the Bank of England, Andrew Bailey, is hailing the recent Covid-19 trial results as a ‘ big step forward’ in the crisis.
Speaking at the TheCityUK National Conference, Bailey says there is now “some light at the end of the tunnel”, which could reduce economic uncertainty.
He points out that business investment in the UK has been weak since the financial crisis – with Brexit and the pandemic both creating uncertainty. And he calls for a “major commitment” from the financial services industry to support the recovery.
As Bailey explains: “Economic theory indicates that heightened uncertainty about the future tends to have a negative effect on investment, it increases the attraction of waiting to see how the uncertainty is resolved
“Both Covid and the process of setting the future relationship with the EU have increased uncertainty – we see this in surveys – and this has restrained investment. Now, I say this to be clear not in the sense of passing any judgement on Brexit – as a public official I take no position on that, and nor do I pass any judgement on the handling of Covid – that is not the point. Our job at the Bank of England is to call it as we see it. So, yes, uncertainty does reduce investment. As we said in our recent Monetary Policy Report, business expectations for sales next year remain subdued as do measures of investment intentions.
“Since we published our report, we have had encouraging news on the vaccine front. Of course there is a lot to do, and important steps to take and evidence to gather, but this is a big step forward, and it will play a major role in lowering the level of uncertainty. So let me thank those in businesses, universities, government and the NHS who are pushing this vital work forward at such impressive speed.
“If we can now see some light at the end of the tunnel, we need to focus more on important questions about how our economies will look in the future, how we want them to look, what will be the legacy of Covid, and what we can do to support and prioritise any necessary more structural changes.”