Andrew Bailey will take over as Bank of England governor on Monday as the worst economic crisis since the 2008 financial crash unfolds, amid growing expectations that he will further cut interest rates to protect jobs and growth.
The new governor is no stranger to baptisms of fire as he prepares to replace Mark Carney in the hot seat, having started his last job – as boss of the Financial Conduct Authority – a week after the Brexit vote.
This time around, the challenge appears far greater, following the biggest stock market crash since Black Monday in October 1987, as countries around the world step up their efforts to contain the coronavirus, with dramatic consequences for households and businesses.
On his agenda from day one at Threadneedle Street will be the task of calming the markets and shoring up confidence in the British economy, amid rising levels of concern about the path ahead.
The coming week is expected to be another volatile one for financial markets and a significant test for the new governor. The odds are mounting that the US Federal Reserve will slash interest rates on Wednesday, following its emergency cut in borrowing costs earlier this month.
Economists increasingly expect Bailey to mark his first 10 days at the Bank with a repeat of the actions in Carney’s last. Some expect the Bank to cut the cost of borrowing close to zero when its rate-setting monetary policy committee meets on 26 March under the new governor’s command. Last week, the central bank cut interest rates from 0.75% to 0.25% in its first emergency cut since the financial crisis, as part of a coordinated intervention alongside Rishi Sunak’s first budget as chancellor.
“We’ve not heard the last from the Bank of England,” said George Buckley, chief European economist at the Japanese bank Nomura. “Much will depend on the speed with which the virus and economic fallout progresses.”
He acknowledged that another cut could come on 26 March. “Our central case, however, is that March may prove too soon, May might be too late, and that another emergency meeting will be required to deliver these measures some time in April.”
Drawing on 30-plus years at the Bank, and having known and worked closely with the last four governors in various roles, Bailey is viewed as a safe pair of hands. However, given the troubled times, the chair of the Commons Treasury committee, Mel Stride, has questioned whether someone more dextrous might be a better fit to replace Carney. After all, Bailey was rumoured not to be the preferred candidate of Boris Johnson, and the man who hired Bailey – Sajid Javid – is no longer chancellor.
Under scrutiny against the backdrop of a crisis, Bailey responded by saying he helped oversee the 2008 bailout of the financial sector, and had been far from sluggish then. “I think I can say that I have quite a strong history of doing things very quickly and of having to change course very quickly,” he told Stride at a hearing of the Treasury committee.
In the longer term, the new governor will need to continue Mark Carney’s work to tackle the fallout from the climate emergency. The task of steering Britain through Brexit without unsettling the economy and upsetting the financial system will also be key later in the year, as talks with Brussels over the future UK-EU relationship intensify.
