The Bank should have waited to see more data on what is happening to the UK economy before rushing to take monetary action. Hard on the heels of its cut in the interest rate, bond buying and extra funding for banks comes two important positive pieces of evidence about the state of the UK economy in the first month after the referendum.
The first was the Nationwide House Price Index for July. This showed an increase of 0.5% in house prices that month, and an annual rate of increase of 5%. It confirmed anecdotal reports from around the country that there has been no crash in house prices and no sudden seizure in the market after the vote.
The second was the Visa report for July showing 1.6% growth in consumer spending using cards compared to 0.9% in June. The seasonally adjusted increase of 1.1% in July was the largest since January. Visa said that “the High Street saw its strongest annual growth rate in five months with clothing retailers in particular bouncing back after a fall in June”. Spending on restaurants, bars and hotels was particularly strong (8.9%), followed by good growth in food and drink. (5.1%).
The Bank last week in its quest for any evidence to support a gloomy view was forced to admit its own early indicators of consumer spending did not point to a fall. This is very important as consumer spending is such a large component of total economic output. It sought to suggest property was going to be weak, but lacked any actual figures to support the case.
Prior to the referendum we were told by many of the professional forecasters and institutions that house prices would fall and consumer spending decline on fears about the vote, and would do so substantially were the public to vote out. We now know that the second quarter of 2016 saw an increase in consumer spending and in house prices despite the uncertainties of the referendum, and now have some positive indication that there was no sudden fall in July following the verdict of the voters.
Isn’t it time all those who got their forecasts wrong made adjustments and came clean about their mistakes? The Chancellor was wise not to rush to conclusions or to produce any panic measures. The Bank should return to basing its judgements on hard data of what happens, instead of trusting unreliable surveys of opinion.