Andrew Bailey needs to be more convincing about the path to recovery

The new Bank of England governor’s predictions about a swift bounce-back don’t inspire confidence

Andrew Bailey, the governor of the Bank of England, is only a few months into the job and already his reputation for sound management of the economy is in danger. Last week he published a scenario for the next two years that amounted to his best guess on the depth of the recession in front of us, and the prospects for a recovery.

The recession would be deep, he said. Most likely the deepest in more than 300 years. It would last for much of the year and cause severe hardship to many, with increases in unemployment not seen since the 1980s.

Had the nation’s economists been connected via Zoom to assess Bailey’s outlook, most would have been seen nodding in agreement.

Then the governor entered more controversial territory, telling a largely disbelieving audience that his scenario shows the economy enjoying a quick, V-shaped recovery in 2021.

Not many economists believe this is realistic. Former chancellor Alistair Darling was one of the first to say it was likely to be wrong and that recovery would be a “long haul”.

Bailey cannot afford too many missteps. One thing we have learned over the past 10 years is that for the central bank, it’s not so much what it does with its financial resources as the messages it sends.

When Bailey talked about himself as a diligent central banker, sleeves rolled up, ready to print billions of pounds to support lending by the high street banks, and by that action help the entire economy during the Covid-19 crisis, the public was reassured.

Bailey was speaking after the central bank’s monetary policy committee (MPC), which he chairs, said it would keep interest rates at a historic low of 0.1%. The committee hinted at a further injection of funds into the system – £100bn to be precise – though it voted by seven to two against making a move just yet.

The money is important. A boost of this magnitude, which could come as early as next month when the MPC votes again, would take the Bank’s stimulus programme, known as quantitative easing, to £745bn, or almost double the amount it considered necessary to keep the economy afloat after the 2008 financial crisis.

The money though, is secondary to the sense of confidence that the Bank brings to dealing with a crisis.

Bailey, like his predecessor Mark Carney, knows the public needs to believe that experienced officials are weighing up the options, independent of government, and choosing only those that are effective and at the same time prudent. Markets must also believe.

Carney was an expert at conveying this sense of being one of only a handful of wise heads able to comprehend the magnitude of a crisis that was at once local – about factory and office closures – and global, with developed and emerging economies suffering the same plight.

As boss of the Financial Stability Board, Carney played a key role in the G20 group of nations as an adviser and quasi-global regulator. The globe-trotting position gave him an influence that outshone the bank’s financial means. If he said the economy was improving to such an extent that he would need to increase interest rates within a few years, he was believed. It didn’t matter that, over the seven years he was in charge, the economy never improved enough for him to raise interest rates more than a symbolic half a percentage point.

He was accused of being an unreliable boyfriend by one MP, and the phrase niggled. But Carney’s bravado won out, with both the public and the markets.

Bailey is a more parochial figure, and the weaker for it. It would be a shame if his first look ahead undermined the Bank’s and his own reputation – especially when the influence of its messaging can be weighed alongside its money.

Government could save jobs at Rolls – if it reacts quickly

The “darkest hour for our whole company since the 1970s” is a big claim to make if, like Warren East, chief executive of Rolls-Royce, you are running a business that was nationalised back then.

Renationalisation isn’t on the cards, though. East went on to say that the aircraft engine maker of today is much stronger financially than the imploding 1971 version, which is undoubtedly correct. But there’s no disguising the looming job losses. Cuts at Rolls are inevitable as the entire civil aviation industry braces for a major fall in output. Boeing says it could take two to three years to return to 2019 levels; Airbus thinks it will be up to five.

If, as rumoured, Rolls plans to cut 8,000 jobs from its global workforce of 52,000, several thousand of those losses will be in the UK. The huge Derby plant, which majors on making engines for the Airbus A350, is in the eye of the storm. A forward-thinking government would be planning to intervene – not by nationalisation but by creating new employment opportunities

At Rolls-Royce, one candidate for this is blindingly obvious – or should be, if ministers could look beyond the day-to-day crisis. This is its small modular reactors (SMR) programme, the technology most likely to fill the hole in the UK’s nuclear energy ambitions.

Rolls, with its submarine expertise, has led development and the missing ingredient is only government’s willingness to provide funding. SMRs can be manufactured and assembled on a single site. The necessary skilled engineering workforce could soon be available.

The Unite union has, rightly, called for the SMR programme to be ramped up. It fits with the government’s industrial strategy and its ambition to de-carbonise the economy. Ministers need to move quickly: they have a chance to protect thousands of jobs.

Ocado has arrived just in time for a struggling Marks & Spencer

There’s not much for Marks & Spencer shareholders to cheer as they contemplate a share price that has fallen below 100p for the first time in decades, but here’s a modest consolation: the big adventure into online food delivery, in partnership with Ocado, starts in September. The timing looks superb.

Archie Norman, the M&S chairman, received a lot of flak in February last year when he agreed the deal to pay Ocado £750m for a 50% share of the new joint venture. Too risky, too expensive and too late to the party, said the deal’s critics. The fact that M&S had to tap shareholders for £600m didn’t improve the mood much either.

Some 15 months later, the vibe should be more positive. Covid-19 has advertised the advantages of home delivery and some households’ food shopping habits will have shifted permanently. Online should be the booming part of the food retailing market even when the pandemic passes.

M&S will still have to demonstrate that Ocado punters are happy to buy its food ranges rather than those of Waitrose, which will be battling to persuade customers to switch to its own platform. But the current momentum behind Ocado’s retail business in the UK was demonstrated last week in the 40% increase in sales since 1 March. Even if some of the extra volume evaporates by September, M&S should enjoy a better online start than it could have imagined.

In turn, the £750m buy-in price looks less of a gamble. M&S would surely have to pay more if the deal was being negotiated today. Norman and chief executive Steve Rowe got lucky.

The Ocado partnership is very far from being a panacea for M&S. The main story remains locked-down stores, cancelled dividends and long-term woes in clothing. But the ailing retailer would be in an even deeper hole without a food delivery service.

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