When Andrew Bailey switched on his TV at home on Monday evening for the latest Covid-19 coverage and saw that the price of West Texas Intermediate oil had plunged into negative territory, it was something of an alarm call.
For the Governor of the Bank of England – one of the small team of executives on the front line during the 2007-09 financial crisis – it was a signal that the turbulence on markets is far from over.
‘It was fairly clear that this was closely related to Covid and demand for oil,’ he tells the Daily Mail in his first newspaper interview since taking over from Mark Carney on March 16.
Calm in a crisis: New Bank of England Andrew Bailey has lived through multiple disasters and coped with all of them
‘Central banks had to stabilise markets and bring a huge amount of firepower. It was a reminder you can’t assume this is ever done.’
It was a baptism of fire even for a man who has been with the Bank since 1985 and has lived through every financial debacle since.
‘The first week or two were pretty extreme,’ he says. ‘On day three, the Wednesday of my first week, markets were borderline disorderly.’
That is a piece of typical Bailey understatement, as shares were in turmoil.
But this is a man legendary for his calm. One story told about him is that, in the middle of the Northern Rock disaster, he took a phone call from his American wife Cheryl who was trying to fend a marauding bear at their holiday home in Idaho, United States.
Cheryl, a professor of public policy at the London School of Economics, chased off the grizzly and her husband carried on saving the financial system.
This crisis, however, has tested even his legendary sang-froid.
Speaking to us from an almost empty Bank building on Threadneedle Street, Bailey, 61, now spends half his week in his usual office and the other half at his family home in Kent.
When he arrived in the Governor’s office last month, some 50 per cent of the Bank’s staff were still operating from their desks.
As lockdown was imposed a week later, all but a handful of staff began working from home.
That means major operations, such as buying up billions of pounds of gilts – IOUs issued by the Government – or dispensing huge sums in crisis aid to large businesses, are being carried out from officials’ kitchens and living rooms, under appropriate security of course.
‘A brilliant economist and a dear colleague’
‘Well loved’: Peter Sinclair who passed away on March 31 after several weeks in intensive care with Covid-19
The Governor paid tribute to Peter Sinclair, a long-standing adviser to the Bank who passed away on March 31 after several weeks in intensive care with Covid-19.
Aged 73, Sinclair was emeritus economics professor at the Birmingham Business School.
Before that, he taught economics at Oxford University for 24 years, mainly economic theory, monetary policy and international economics.
He was a mentor to generations of this country’s most respected economic thinkers, many of whom have paid tribute to his intellectual prowess, his vocation for teaching, and his kindness.
Other students included David Cameron – he was tutor to the former Prime Minister at Brasenose College, Oxford – and King Letsie III of Lesotho.
‘A number of colleagues have had the virus and sadly we lost a very dear colleague, Peter Sinclair,’ Bailey said. ‘He was a brilliant economist and a very dear man.’
Sinclair also served as a consultant to City regulator the Financial Services Authority, the Treasury and the US Department of Labor.
Professor Catherine Cassell, the dean of Birmingham Business School, said that Sinclair was ‘well loved’ and that he had ‘endless time for colleagues and students, and was always passionate and enthused when discussing how economics could make the world a better place’.
Bailey is pleased with the heavy lifting the Bank has done in channelling funds to larger corporations since the lockdown began.
But he is more critical of the Coronavirus Business Interruption Loans Scheme (CBILS) for small firms which he says has been ‘clearly not satisfactory’. The rescue plan for big corporates has dispensed just over £10billion, enabling ‘businesses to come back’ when the medical crisis recedes and the lockdown is eased.
On Monday of this week ‘just over £10.4billion had been lent, a run rate of half a billion pounds a day,’ Bailey says. The scheme is doing what it is meant to do. He says: ‘It has saved jobs.’
Bailey is far more circumspect in his comments on the CBILS support for small businesses, where the Bank doesn’t have a direct role. He says he is talking to the banks on a ‘regular basis’ and has been trying to ‘gee them up’.
However, he acknowledges that there ‘are bottlenecks at various points in the chain’ and, as a result, the banks are ‘finding it hard to deal with the flow’.
He is reluctant to condemn the banks. Lenders are being deluged with applications at a time when they are short-staffed due to the virus.
Many of the small firms lodging claims ‘have never applied for credit, and do not have business plans. The problems of risk assessment gum up the operations,’ he says, adding that the system ‘needs to be un-gummed’.
He has hinted that a ‘grant’ scheme – instead of loans which are 80 per cent guaranteed by the Government – might work better.
The current system has problems because many firms do not want to take on debt at a time like this. And because the banks are on the hook for some of the money if firms cannot repay, they are forced to do time-consuming risk assessments.
A highly-respected operator, Bailey has spent virtually all his career at the Bank after graduating from Queens’ College Cambridge, where he did history.
His most recent job was as boss of the Financial Conduct Authority, where he came under fire over the Neil Woodford affair. But that was one of only a very few blots on the copybook in a long career.
The Bank will set out its view on the economy and on the health of the financial system in two separate reports in early May.
As part of that, it will be trying to test the resilience of the financial system. He acknowledges that none of the stress testing done until now has been ‘motivated by a pandemic’.
His main concern for the economy is to minimise what the Bank calls the ‘scarring’ – things like ‘business failures, long-term unemployment. We’re determined to keep that to a minimum.’
Some fear that the actions the Bank is taking risk fuelling higher inflation down the line – a concern for Bailey, whose job is to keep it at around 2 per cent.
His feeling, however, is that the collapse in the oil price ‘will put downward pressure on inflation’.
Equally, he rejects suggestions that the current disruption to the normal economy could lead to Japanese-style deflation. He suggests there is every reason to believe there will be a V-shaped recovery depending on how lockdown is lifted.
As a veteran of the financial crisis, he observes that the coronavirus fallout has ‘happened a lot more quickly’, noting there was a full year between the collapse of Northern Rock in the summer of 2007 and Lehman in 2008.
‘This has happened in a small number of weeks,’ he says.
Despite taking over in the middle of the most frightening crisis of our lifetimes, Bailey does not betray the least trace of panic. He has the confidence of a man who has lived through multiple disasters and coped with all of them.
That should be reassuring to us all.
How bad will the recession be – and what will the recovery look like?
The economic destruction of the coronavirus crash was laid bare in a report from the Office of Budget Responsibility this week.
But although the OBR forecast an astonishing 35% slump in UK output in the second quarter of this year – with a three-month lockdown – the other side of its chart showed a substantial bounce-back.
What will we need to do for that recovery to happen – and what will it look like?
On this podcast, Simon Lambert and Georgie Frost look at the reports on the economic impact of Covid-19 and at the potential bounce back, along with which sectors and businesses could seize the day when it comes.
Press play above or listen (and please subscribe if you like the podcast) at Apple Podcasts, Acast, Spotify and Audioboom or visit our This is Money Podcast page.