On Andrew Bailey’s first official day as Bank of England boss he was virtually alone in the palatial building. The footsteps of a skeleton security crew echoed as they hit the polished mosaic floors . In March 2020, the first Covid-19 lockdown had turned London’s financial district into a ghost town. Far below in the vaults, shelves of gold ingots rested on London clay beneath the fortress affectionately known as the Old Lady of Threadneedle Street.
A trip to the deserted canteen failed to yield a sandwich. Bailey had to resort to rooting around in a fridge. It was slim pickings: a bottle of champagne, and half a loaf of sliced bread. He nabbed the bread and went back to his desk to call important figures in the short-term credit markets, which had become highly stressed. He was calm, reassuring, and “zero-bullshit”, said one City figure who received a call from Bailey, “far more impressive than he is at press conferences”.
Champagne would have been a bold choice on a day when the value of both stocks and bonds plummeted – a hallmark of a dire market sell-off and investor panic as Covid-19 took hold. The FTSE hit an eight-year low. Besides, Bailey had largely given up alcohol, though he still loves to host friends for a fish supper. Seabass was his speciality, and cooking – along with gardening and cricket – his favourite hobby.
Crises seem to come in battalions for one of the UK’s most powerful unelected officials: he and fellow interest rate setters are now in the spotlight, faced with a difficult balancing act as they try to crush inflation without crashing the economy too. . The Bank is likely to raise interest rates for the ninth consecutive time on 15 December to try to combat price rises running at 10.7%, according to figures today. But increasing the cost of borrowing for households and businesses could deepen a recession which Bailey’s team expects will extend until mid-2024.
Some analysts believe the Bank’s rate-setting committee – the monetary policy committee (MPC) – may be split when a decision is revealed on Thursday; some back no change, others are divided on how much to increase, potentially forcing Bailey to make a casting vote.
“It hasn’t so much been a baptism of fire as an endless raging inferno for Andrew. And if I’m really honest, that probably suits him,” said one former colleague of the governor. “What he definitely lacks in polished PR skills he makes up for in the classic British civil servant’s crisis stamina. He doesn’t blink or complain about working through the night.”
Little did Bailey know that working late throughout March 2020 would prove a relatively calm affair compared with the aftermath of the Liz Truss/Kwasi Kwarteng mini-budget. It forced the Bank, whose mandates cover inflation, financial stability and City regulation, to inject billions of pounds into the UK government bond market to calm the sell-off.
Investors, shocked at the sheer scale of the tax cuts and huge spending commitments laid out by the then chancellor, Kwarteng, dumped UK gilts. The sharp rise in yields, the interest paid on government borrowing, which rises as the price of the bond falls, uprooted the investment strategies of pension funds.
“He’s a calm person, he likes a little chuckle, but when Kwarteng then came out promising yet more tax cuts, he nearly lost it. He’d never tell the government what to do, but this was clearly a step that would inflame markets. He was angry and felt it was irresponsible,” said a colleague at the central bank.
The governor had been alarmed at the handling of the Treasury early on in the Truss premiership. He had known Sir Tom Scholar, whom Truss sacked as permanent secretary of the department, for many years. Bailey sent him a message of support when he heard the news. He subsequently told MPs that the Bank and figures in the Treasury had been kept in the dark about major fiscal measures announced by Kwarteng.
The son of a sixth form college principal from Leicester, Bailey attended Wyggeston boys school, which was in those days still a grammar school, before studying history and then an economics PhD at Queens’ college, Cambridge. He is married with two children.
In an age before online dating apps, it was a shared passion for the Corn Laws while they were both postgraduate students that brought Bailey and his wife, the economist Cheryl Schonhardt-Bailey, together. Friends say they are both “hardcore geeks” who believe in public service.
“She’s pretty fierce, in the best warm impressive sense of the word,” a friend of the couple says.
City legend has it that Bailey was involved in fighting off both a bear and a snake at his family’s holiday home in Idaho. But, a reliable source says, it was Schonhardt-Bailey who saw off the animals , while her husband offered moral support on the phone.
Although Bailey won plaudits from some City bosses for his handling of the aftermath of the mini-budget, he has also faced significant criticism.
His predecessor, Mark Carney, known for his polished appearance and confidence as a public communicator, was described as a rockstar central banker by commentators. Bailey is widely considered to be less slick. Bailey was described as the “sexy turtle” by Carney, and is known for being particularly collegiate compared with some predecessors.
His guidance to workers not to seek pay rises lest they feed soaring inflation was met with outcry. With a pay package totalling £597,592 in the year to February, he appeared out of touch with the difficulties faced by those struggling to get by on much less. The GMB union described the remarks as a “sick joke”.
One hedge fund manager said they fear Bailey “gets financial stability, but he’s not a macro man”. They noted events in November 2021, when the governor was forced to defend himself when traders had expected the Bank to raise rates, only to hold them at 0.1%, leaving many feeling misled. He told Bloomberg TV at the time it was not the Bank’s “job to steer markets day by day and week by week”.
“That is quite literally a core part of his job,” the fund manager said. Bailey was also criticised for some decisions made while boss at City watchdog, the FCA, , in particular slow progress in investigating the treatment of business customers by RBS and Lloyds, as well as for its handling of the failed investment firm London Capital & Finance.
Others believe Bailey’s approach has meant that investors will have a better sense of his fellow rate-setters’ thinking than under previous governors: “He listens much more and is far more collaborative and collegiate, and respects others’ expertise.”
He will need every bit of that expertise as he navigates the choppy waters ahead. Ordinarily a central bank might hope to cut interest rates as output slows, cushioning households and businesses with cheaper borrowing during a low point in an economic cycle. With quantitative easing ended, Bailey’s options are more limited, economists say.
“When I was on the [MPC] we were never faced with a situation like today where the economy is slowing and inflation is so high,” says Dame Kate Barker, an economist and former rate-setter at the Bank.
“It’s easy to be quite popular when you are cutting rates. But you need quite a big reset from really low interest rates,” she adds.
Brexit has damaged UK growth prospects, fuelling inflation, which means “of all the central bankers in the world Bailey’s got the toughest job”, says Chris Williamson, chief business economist at IHS Markit.
People often watch central bankers for “tells”, from ties to scarves to coloured watch straps, these are sometimes used as a means to work out whether the hawks or the doves (colloquial terms for those who back a hike or cut to rates) will win out in any given interest rate meeting.
Bailey’s tell, at least so far , is to lean back and rub his tummy when he’s stressed, according to a fellow rate-setter and someone with knowledge of his habits. He’s done it pretty often of late, they say.
“He’s certainly mindful of walking a knife-edge on rates right now,” the rate setter said. “He has unemployment and inflation as a careful balance in mind.”