Brexit Mayhem?

The year has not started particularly brightly for UK prime minister Theresa May. Last week's resignation of Sir Ivan Rogers, the UK's ambassador to the EU who cited "ill founded arguments and muddled thinking" in his resignation email, suggests that all is not well at the heart of government. The Economist was also critical of the prime minister, arguing in an editorial this week that the fact she has not yet articulated a vision regarding Brexit, other than soundbites, means there is a "growing suspicion ... that the Sphinx-like prime minister is guarded about her plans chiefly because she is still struggling to draw them up." To compound it all, her comment in a TV interview at the weekend suggesting that the UK would not try to keep “bits of membership” of the EU, further spooked markets into fearing that the UK is heading for a hard Brexit.

This is all rather worrying and chimes with the view I expressed at the end of December that what is lacking is any form of leadership. Eleven months after David Cameron suggested in parliament that the UK should trigger Article 50 as soon as possible in the event of a leave vote, we are no further forward. Three months after the car crash which was the Conservative Party conference, I had hoped that senior politicians would row back from some of their less aggressive rhetoric, but what we have heard from the PM suggests that she is quite prepared to trade off control of UK borders for any form of access to the Single Market. For a long time, I was never quite sure whether May was playing some sort of double game to try and lull the Brexiteers into a false sense of security. But now I have little doubt that she really means it when she says "Brexit means Brexit."

Lest we forget, almost half of all voters did not vote for Brexit, but it appears to me that the terms of the debate are being framed in favour of the just over half that did. In that sense, the outcome is a very binary one: There is no sense of compromise and there is apparently little attempt to pacify the pro-remainers that their concerns will be listened to. Matters would not be quite so bad if we thought that the political opposition was in any position to put pressure on the government to act in the interests of those who did not vote for a "red, white and blue" Brexit. But the Labour Party leadership has been so silent on the issues that matter that it is legitimate to question whether Jeremy Corbyn deserves the title "Leader of Her Majesty's Loyal Opposition." Indeed, his speech today was rather lukewarm on the subject although not quite as pro-Brexit as many of the newspaper headlines suggested (here).

All this political uncertainty forms the backdrop against which economists are required to offer some form of projections for 2017 (although much of the recent popular commentary suggests that maybe we should not bother). Given that politicians do not seem to know how to proceed, it should not be surprising if economists do not either. I am as concerned today as I was throughout 2016 that the government's plans take no serious account of the economic consequences of Brexit. And as much of the commentary in the wake of Rogers' resignation highlighted, the government does not seem to be interested in hearing of the dangers. Although the post-referendum car crash may not have happened, the economy may have suffered serious internal injuries, the consequences of which may only be evident later.

All this is dangerous, and is not the way I would go about tackling a problem as complex as Brexit which requires the gathering of as much intelligence as possible before deciding to go ahead. In the absence of some form of transitional deal, it is hard to see how the UK can conclude the Article 50 negotiations within the permitted two year window, let alone the 18 months which the EU is likely to demand. Markets are thus not hanging around, preferring to shoot first before asking questions later. If, by some miracle, a favourable deal can be reached, the markets always have the option of rallying – currency markets have a special knack of being able to shamelessly cast off their previous views. We should thus view the recent fall in the pound as a move by the FX market to raise the risk premium on the pound. Economists may be under fire for basing their models on the unfounded assumption of rational expectations, but in this instance I rather suspect that market fears are perfectly rational.

Something Fishy in the world of forecasting

The Bank of England’s chief economist, Andy Haldane, created something of a furore on Thursday evening when he admitted that “it’s a fair cop to say the profession is to some degree in crisis” following the EU referendum. Haldane suggested that this was a “Michael Fish moment[1]” for the economics community, whose models struggle to cope with irrationality. In a way this is heartening. Anyone who has read any of my posts over recent months will know that I am critical of much mainstream macroeconomic academic research, in which models are based on rational behaviour (here, for example). I am also highly wary of the output produced by economic models (including my own). What was less heartening was the way in which the press jumped all over the story and began to conflate some of the issues, which generated a number of below the line comments on many newspaper websites demonstrating widespread ignorance of the issues at hand.

The article which most raised my hackles was by Simon Jenkins in The Guardian (here), who wrote that “the profession owes the public an inquest and an apology” and accused economics of grovelling “before its paymasters in government and commerce.” Predictably, the Pavlovian responses of many reader comments were along the lines of “economics is not a science” and “experts don’t know what they are talking about”, thus confirming that Michael Gove was right all along. One small snag: Jenkins’s article was confused and wrong. He conflates the problems in economics and the issue of Brexit as though they were one and the same thing. They’re not.

One issue Jenkins failed to mention was the extent to which many mainstream macroeconomists believe that their discipline has taken a wrong turning. He only need read the blogs by Paul Krugman to get a flavour of that. You certainly won’t find me defending the use of rational behaviour in economic models (for the record, all the models I have ever built use adaptive, rather than rational expectations). His second mistake was to conflate economics as a discipline and the arcane practice of forecasting.  I don’t know how many more times I have to explain to people that economics is not a predictive discipline. We can build models which capture the aggregate performance of the economy over the past but their predictive ability depends on numerous exogenous factors which can throw the model-generated path off course.

It is true that the short-term forecasts in the wake of the referendum turned out to be wrong. But the forecasts were made against the backdrop of zero to partial information; a power vacuum at the heart of government; the expectation that Article 50 would be triggered sooner rather than later, as David Cameron had promised, and a hysterical media. They are the worst circumstances in which to make a forecast for the next two years. But as I have pointed out before, three of my four key pre-referendum predictions have been borne out: Sterling would collapse; the BoE would cut interest rates and the stock market would rally after an initial dip. I was wrong on gilt yields, which fell rather than rose. And time will tell whether my view that post-Brexit growth will slow relative to what we experienced previously will also be borne out.

Jenkins was also wrong to confuse the political and economic aspects of Brexit. The issue of Brexit is purely a political issue but it does have potentially significant economic consequences. Anyone trying to come up with a forecast for the UK over the next five years or so has to take into account the fact that trading arrangements will be different, and they will almost certainly lead to a loss of economic welfare. However, it is worth making the point (again) that most analysis produced before the referendum reckoned that a vote to leave the EU would knock an average of around 0.3% off annual growth for a period of ten to fifteen years. We will likely feel it, but it would put the UK’s growth rate more into line with that of Germany since the turn of the century, rather than the outperformance of recent years. In other words, not a headline-grabbing disaster but not a good outcome either.

Finally, it is worth repeating the point I have been making for some time (most recently last week, here) that point economic forecasts are more likely to be wrong than right and that the probability distribution of risks around that central case is a more useful metric of accuracy. In a way, it was surprising that Haldane did not mention this because the BoE has been a pioneer of probabilistic forecasting. And for all the criticism levelled at the BoE, its August forecast for Q3 GDP growth assigned a near-45% chance that it would exceed 2% - as indeed happened.

It can only be positive that economists hold their hands up and admit when they are wrong. But I am not sure that Haldane did the economics profession or the BoE many favours by giving the media a stick to beat us all with. Indeed, as Mark Harrison of Warwick University asked: “Is epidemiological science in crisis because public health officials did not predict the largest Ebola epidemic in history?”

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[1] Michael Fish is a meteorologist who in 1987 famously predicted that rumours of an impending hurricane were unfounded (here). In the event, London was hit by its biggest storm since 1703 which caused major damage and disruption. Moreover, UK markets were effectively closed on the following day (Friday) at a time when Wall Street was tanking. When London markets reopened the following Monday, it prompted a far sharper London collapse, amplifying the negative global sentiment which contributed to the severity of Black Monday on 19 October 1987.

Superforecasting 2017

Between the beginning of December and around about this time each year, we are assailed with forecasts for the year ahead. Sometimes the forecasts turn out to be right, other times they are badly wide of the mark. Years of bitter experience have taught me that making a point forecast for any economic quantity one year ahead is often an exercise in futility. But any forecast based on a reasonably well-thought out story is better than taking no view at all and trusting to luck. I was thus intrigued by the findings of the recent book by the political scientist Philip Tetlock and journalist Dan Gardner entitled “Superforecasting: The Art and Science of Prediction” (here).

Essentially, Tetlock and Gardner conclude that forecasting is a skill that can be learned although some people are better at it than others. The so-called superforecasters generally manage to outperform experts in a wide variety of fields because they adopt an eclectic approach to analysis, preferring to process information from a wide variety of sources. Tetlock assumes that forecasters can be divided into two categories – hedgehogs and foxes. Hedgehogs tend to have in-depth understanding of a small number of areas, whereas foxes believe the world is a very complex place and tend to avoid shoe-horning their ideas into a limited number of boxes. Perhaps not surprisingly, foxes make the best superforecasters.

Although they tend to be smart people, Tetlock finds that superforecasters are in no way geniuses. They tend to look at a wide range of information in making their judgements and are happy to revise their assessment if new information becomes available (in the same way as Bayesian statisticians, as I noted here). Whilst my record disqualifies me as a superforecaster, I was struck by one of the lessons which came out of the analysis, which is that they think in fine gradations. Thus, rather than offering an outcome with a probability of 60-40, a superforecaster might carefully weigh up the evidence and instead offer odds of 63-37.

This brought to mind my own deliberations in the immediate wake of the Brexit vote when I was prevailed upon to offer an unambiguous view of what would happen next, but the more I thought about the issues the less clear they seemed. I recall my assessment on 27 June was that the UK was likely to leave the EU with a probability of only 59% whereas in the wake of the Conservative Party conference in October, I raised the likelihood to 90%. As new information comes in, that figure may well change again. This highlights a view which is gaining common credence – and one which I have long been convinced by – that the central case forecast is by itself not much use unless we attach some form of weight to show the degree of conviction with which we hold to the view. Otherwise the forecast becomes a binary decision which is either going to be right or – more often – wrong, which is when forecasters open themselves up to the charge that they have no idea what they are doing.

So in the face of all these caveats, what are the key issues we should be looking out for in 2017? The biggest local risks are: (i) the UK triggers Article 50 in March without making any contingency plans in the event that discussions with the EU prove more difficult than expected; (ii) Marine Le Pen wins the French presidential election; (iii) Angela Merkel fails to win the German election.

As regards (i), I genuinely do not know how this will pan out. I am working on the assumption that the Supreme Court will uphold the High Court judgment and that parliament will be allowed a say on the triggering of Article 50 which will delay its implementation. As a result, I currently assign a probability of 45% to this outcome. On (ii), the polling evidence suggests (for what it is worth) that Ms Le Pen has no chance of winning the second round of voting, and consequently I would give this a probability of 25%. And I see no alternative to Angela Merkel continuing as German Chancellor, so this is assigned a probability of 10%. The joint subjective probability of all these outcomes occurring is just over 1% - negligible but not impossible (which is how in early 2016 I characterised the joint likelihood of the UK voting for Brexit and the US for President Trump).

On the other side of the Atlantic, I would be surprised if Donald Trump can do much damage to the US economy in 2017, although further out it is likely that greater difficulties will become evident. He is unlikely to build his wall on the Mexican border; jail Hillary Clinton; deport illegal immigrants or completely dismantle Obamacare. But I suspect markets will not get the benefit of the hoped-for fiscal stimulus and as a result I would be surprised if US equities continue rising much beyond the spring (I won’t even put a probability on this one).

We should be in no doubt (as if anyone needs reminding) that the year ahead is more plagued by uncertainty than at any time since 2009. But as I say to journalists who ask whether I expect any surprises, it is the unexpected surprises which tend to do the most damage, and since by definition they are unknowable, time has a habit of making fools of us all.

That was the year that was

It has truly been a historic year, the reverberations of which will echo for years to come. Above all, 2016 was the year of politics and will primarily be remembered as the year when electorates in the west decided that enough was enough. And who can blame them? Governments have spent the past seven years trying to convince their electorates that normality is just around the corner, when in reality they should be preparing for the new normal. Conventional countercyclical policy is battling against the headwinds of globalization and rapid technological change, which add up to make this the most unsettling period that many of us have ever experienced.

The geo-political environment is in a state of flux as the tectonic plates of the post-1945 order move again. Far from this being the end of history, as Francis Fukuyama once predicted, we are closer to Yogi Berra’s aphorism that it’s déja vu all over again. Precisely at a time when strong political leadership is called for, we find it is sadly lacking.

In the UK David Cameron – a deeply flawed leader who gambled his country's economic future for short-term political gain – has been succeeded by Theresa May, who gives no public indication that she understands the complexities of negotiating Brexit. In France, President Hollande is the most disliked president in French history, to the extent that he will not stand again next year because he knows he cannot win over the people. There is indeed a non-negligible probability that the French could elect a far-right president next year in the shape of Marine Le Pen, although I would not put money on it. Italian PM Renzi quit after his proposals for constitutional reform were rejected in a referendum which ended being a plebiscite on his own term of office. Only Angela Merkel is still standing tall, but even her popularity could take a tumble in the wake of recent events, as her open borders policy is increasingly scrutinized. With an election due in the autumn, the world will be watching to see whether Germany can uphold the values of liberal democracy which are being eroded elsewhere.

Meanwhile, the political situation in the US is almost beyond parody. Although the economy has recovered more rapidly than most, Barack Obama is unlikely to go down as a great president. A great orator he may be, but he has failed to offer the leadership that the western alliance so badly needs. Whilst his policy of avoiding military entanglements was taken for sound reasons, his Middle Eastern policy has been a failure, and if anything has made a bad situation worse. His attempts to reset relationships with Russia have also been a dismal failure. Moreover, he spent a lot of time and effort battling Congress on basic economic issues such as the debt ceiling (though that is more the result of Tea Party influenced ideology than the president's stance). But as sub-standard as Obama may have been, the election of Donald Trump represents a leap into the unknown. It is a measure of the dissatisfaction which many Americans feel that they are prepared to give the keys to the Oval Office to someone who lied and exaggerated their way through the most unedifying presidential campaign in history.

Vladimir Putin and Xi Jinping can at least look forward with more optimism. Putin has restored some prestige to Russia's tarnished image, and although the economy will continue to suffer from the sanctions which are still in place, he will be taken more seriously on the global stage following Russia's intervention in Syria. China's President Xi will continue to preside over the world's most dynamic large economy as he consolidates his domestic power base. There will be difficulties ahead, however, and as both leaders look to reassert their country's position on the world stage, we will need a cool head in the White House to ensure that matters do not get out of hand. It may indeed be the year when we learn the true value of President Obama.

It is against this backdrop that the world economy will continue to operate and I will save the 2017 economic outlook for another post. What 2016 has taught us, however, is that the shape of the risk distribution has changed. Outcomes which we thought implausible are manifestly not. The good news is that there is profit in uncertainty. Apparently, the bookmakers’ joint odds that the UK would vote for Brexit; that Trump would be elected US president and that Leicester City would win the English Premier League were 4.5 million to one. Paddy Power is offering odds of 33/1 that the existence of alien life will be proven in 2017 (2016 odds are quoted at 80/1, so you have less than a day to place your bets). Meanwhile, Fergus Simpson, a mathematician at the University of Barcelona, reckons that there is a 500/1 chance of a cataclysmic event wiping out human existence in any given year during the 21st century (Don’t believe it? Go here).

Above everything else, however, we have learned not to trust bookmakers odds (a remain victory or a Clinton presidency anyone?) And as Michael Gove so memorably remarked, we have all “had enough of experts” (although only until they are proven right).

It's not only economists who see the obvious

Alan Bennett is best known as a playwright (The History Boys, The Madness of George III) although he is also a prolific screenwriter, actor and author. In addition to all this, he is an inveterate diarist and in his 2015 journal, an edited version of which was published in the London Review of Books (here), he made the following entry: 

“11 September. David Cameron has been in Leeds preaching to businessmen the virtues of what he calls ‘the smart state’. Smart to Mr Cameron seems to mean doing as little as one can get away with and calling it enterprise.“ 

In a recent TV documentary I heard Bennett repeat the comment in his cosy, affable tones which makes it even more devastating. It accurately captures the thrust of fiscal policy over the last six years and is a withering indictment of thirty years of market economics. But before we swallow this soundbite wholesale, we should acknowledge that there is a genuine discussion to be had about the role of the state in a modern economy. One of the big issues is the size of the safety net that the state should be expected to provide, and the answer will differ according to the prevailing mood. Nonetheless, according to Jonathan Bradshaw of the University of York (here) “the real damage has been done by this present government … The uprating of working age benefits by substantially less than inflation since 2010 and cuts made in tax credits has resulted in falling living standards. This was the first time that the real level of the safety net had fallen since Unemployment Assistance began in 1934. 

No one should be in any doubt that life at the bottom is tough, and getting tougher. Ironically, when the German government introduced a series of welfare reforms in the first half of the last decade, which cut benefits in order to force people back into the labour force, it was lauded for the boldness of its move. Other European countries are being urged to follow suit – notably France and Italy. And with Germany today held up as a paragon of economic virtue, there does appear to be some merit in a policy of welfare reform. Indeed, the UK reforms of the 1980s are credited with kickstarting the economic recovery of the Thatcher era. But like many economic policies, there are diminishing returns to more of the same, and I wonder whether in the UK we have hit the limits of what people are prepared to tolerate.

But it is not only those at the bottom who are being squeezed: middle income groups across the industrialised world are not faring well either. According to the Institute for Fiscal Studies, real average wages in the UK in 2021 are expected to be lower than they were in 2008 and it concludes that “we have certainly not seen a period remotely like it in the last 70 years.” At issue is what the government can and should be expected to do about it. In an economy where the government’s direct role has been reduced as many activities have been privatised, it can only play a limited role by setting the framework. After all, it is no longer in a position to set wages for large parts of the workforce.

Bennett’s criticisms go deeper, however. The UK government under David Cameron adopted a laissez faire approach to many economic problems which frankly failed to deliver the desired results. Bennett was undoubtedly referring to Cameron’s flagship Big Society project which was designed to give more power to local communities by encouraging a transfer of power from central to local government. It was a nice idea in theory, but it was the wrong policy at the wrong time. Faced with the aftermath of the biggest economic crisis since the 1930s, most economists would argue that more government rather than less are what is required.

Moreover, with around 60% of UK local government spending being funded by central government, it was always a pipedream to assume that more local decision making was ever going to work without more local control over budgets. With central government funding for local activities such as the police having been cut by 22% in real terms between FY 2010-11 and 2015-16 (source: National Audit Office) Bennett’s criticisms start to hit home. It is indeed hard to avoid the suspicion that government policy in recent years has focused on shrinking the size of the state whilst telling the electorate that it is promoting enterprise or increasing choice. And I still hold the view that at least part of the reason for the Brexit vote was directed at the failure of government to manage the economy in ways that benefited large parts of the electorate.

As we look ahead to 2017, it would be nice to think that the UK government will spend less time fretting about cutting the deficit and more about how to use fiscal policy as an instrument to promote growth. But from what we have heard so far, which amount to words rather than actions, I have to say that I am not confident.

All I want for Christmas ...

… is a Ferrari 250 GTO. Admittedly it’s not a modest request – the last recorded auction price of this widely revered classic was a cool $38 million and there is one on the market today for a reported asking price of $56 million (here). When new in 1962, they cost $18,500. To put this into perspective, I have converted this using prevailing exchange rates into sterling values in order to compare with other so-called safe asset values such as housing.

According to data from the Nationwide Building Society, the average price of a UK house in 1962 was £2,600 – around one-third of the price of a Ferrari 250. By 1965, when the 250 was auctioned for the first time, the selling price was 25% of the original list price and it could be purchased for 40% of the average UK house price. Up until the early 1970s, the selling prices of the 250 were never higher than average house prices but from the middle of the decade, prices began to ramp up hugely (see chart). 

The first $1 million sale occurred in 1986 and by the late-1980s – the peak of the bubble in classic car prices – the 250 GTO was selling for prices in excess of $10 million which was 125 times the price of an average UK house. Following the early-1990s crash, which saw Ferraris changing hands for a mere $3.6 million (42 times house prices), prices began to edge up again but it took until 2010 for prices to exceed the previous 1990 peak. It is notable that the ratio of Ferrari prices to house prices has already gone above the 1990 level and if the current prospective seller realises their expectations, the buyer could in theory buy more than 200 houses for the same money.

If someone had bought this wonder of engineering new in 1962 and sold it for $38 million in 2013, they would have realised an annual average return of 16%. Had they waited until 1965 to buy at auction, they would have realised a gain of 21%. It’s a much better rate of return than housing, where prices have risen at an average rate of 8.5% since the early 1960s. However, the FTSE All-Shares index has posted an average return of 13% since 1962. Investors would not, of course, have realised such stellar gains as they would have had to adjust their equity portfolio holdings in order to replicate the index which would have resulted in transactions costs which eat into returns.

On balance, therefore, the Ferrari 250 looks like a great investment compared to other forms of asset. But we are not all fortunate enough to have the wherewithal to afford such an outlay. Most classic car enthusiasts have to start much more modestly and prices have risen much more slowly over a longer horizon. In any case, the market is highly segregated with top brands showing significant gains whereas at the lower end of the spectrum price inflation has been less dramatic. However, the Historic Automobile Group International (HAGI) index suggests that over the last five years, classic car prices have risen by between 25% and 30% per year. I would attribute this at least in part to the low rates of return on financial assets which have forced investors to look at alternative investment products. It may be a market which, when it pops, does so with a vengeance.

Unfortunately for me, I do not own a classic car, so I am speaking from observational rather than practical experience. But as a reader of classic car magazines in my youth, I used to scan the adverts to check what I may one day have been able to afford. In the late-1970s I recall seeing an ad for an Aston Martin DB5 which was described as being in need of some loving care. I subsequently came to realise that meant a total wreck which was probably held together by rust. However, it was on sale for a mere £750 (no – I have not missed a zero) which was cheap even by the standards of 1978. I barely had 75p to rub together in those days so it was a little out of my league. But a DB5 in even fair condition is today valued at £438,000 with a top notch model able to fetch £958,000. Allowing for £10,000 of maintenance to bring it up to concourse standard, that would have provided a cool annual return of 12.5% over the last 38 years.

They do say that this is the season when dreams come true, so if you’re listening Santa … Merry Christmas!

Called to account

Whilst most of us are thinking about winding down for Christmas, the UK Treasury Select Committee today decided to play Scrooge by announcing that it will hold an inquiry in 2017 into the effectiveness and impact of post-2008 monetary policy in the UK. If the timing was a surprise, then the idea of opening up the conduct of monetary policy to this kind of scrutiny certainly is. Since the BoE was granted operational independence almost twenty years ago, I cannot recall an inquiry into monetary policy on these terms.

The TSC wishes to look more closely at three aspects of policy: (i) The effectiveness of monetary policy in meeting the inflation target; (ii) The unintended consequences of policy and (iii) monetary policy prospects. All of these topics have been covered on this blog at some time or another and the issues at stake here are not simply confined to the UK. The BIS has long pointed out that monetary policy has been kept too lax for too long, and that it indeed has pushed up financial asset prices with at best a questionable impact on the real economy. Of course, the issue is not whether so-called unconventional monetary policy was the right thing to do in 2009: It is whether it is still appropriate in 2016. Indeed, the BIS titled Chapter 1 of its 2015 Annual Report “Is the unthinkable becoming routine?”

I must confess to a couple of contradictory views on the question of whether monetary policy should become politicised in this way. On the one hand, although the BoE does have operational independence it is only right that it is subject to parliamentary account. After all, the decisions which it takes affect those to whom parliament is accountable: the electorate. Yet the BoE Governor and members of the MPC appear before the TSC at least four times per year, and in the course of 2016 Mark Carney has had to endure additional sessions where he has been forced to defend at length the BoE’s conduct both before and after the EU referendum. On the other hand, it is surely no coincidence that the pressure on the BoE has mounted after it in effect backed the losing side in the Brexit debate. I wrote before the EU referendum that in the event of a vote for Brexit “Mr Carney’s position will become extremely uncomfortable given the strained relationships between himself and many Eurosceptic MPs, some of whom sit on the Treasury Select Committee to which he is accountable.”

TSC Chairman Andrew Tyrie also pointed out that “the BoE has been given huge powers but that comes with equally large responsibilities” and in exchange for BoE autonomy, the governor should stick “closely to his statutory objectives.” This follows interventions by the BoE on issues such as the Scottish referendum (although senior civil servants at the Treasury were equally culpable for opining on that issue), climate change, inequality and pensions. The question of whether BoE officials – of which the governor is the most high profile – should be given the freedom to discuss other areas outside their direct remit is contentious. The likes of Tony Yates, professor of economics at Birmingham University and a long-established blogger, has often made the point that the governor should tread carefully. As he wrote earlier this month (here) “reflecting on how to respond to [the risks of social dysfunction] is just not a job the Bank has been mandated to carry out. At least not in public.”

This is fair comment. But as I have long argued, governments are not exactly rushing to fill the gap with policy prescriptions of their own and there is a role for policy heavyweights to speak out. After all the ECB has been doing it for years, and Alan Greenspan was never short of an opinion on policy matters outside the monetary sphere. In any case, many of these issues – notably fiscal policy – do impact elsewhere because they have a bearing on the appropriate monetary policy stance. But it is hard to avoid the suspicion that the decision to scrutinise the BoE’s policy remit is at least in part a response to Carney’s speech earlier this month, in which he called for a greater contribution from fiscal and structural policy to help support growth (here).

Two final thoughts: Given the limited resources available and a pressing time constraint, surely it would make more sense to focus on the policy response to Brexit in 2017 rather than waste energy on this issue. And second, by piling ever more scrutiny on monetary policymakers, the BoE’s policy independence will, at the margin, be eroded. After all, who is going to want to take unpopular decisions if they are going to be put under the microscope at every turn? Like a Facebook relationship status, monetary policy decision-making might be about to become very complicated.