The Bank of England's chief economist has warned that negative "Chicken Licken" views threaten to hold back the UK's post economic recovery from the coronavirus.
Speaking to business leaders at the Cheshire and Warrington LEP annual meeting, Andy Haldane said that while the rising level of Covid infections, higher unemployment and Brexit were all major concerns, as a society we must be wary of “catastrophizing”.
He also responded to fears over how long the Government's current spending spree can continue, adding that the recovery will be led by economic growth.
Mr Haldane said the UK faces an "unholy trinity of risks" - Covid, Brexit and unemployment.
He said: "At present, the largest clouds on the economic horizon in the UK come from: the effects of rising numbers of Covid cases across the UK and the accompanying policy measures taken to contain them; risks to business activity and jobs in the light of these public health developments; and the effects of moving to new trading arrangements with the EU at year-end. This unholy trinity of risks give good grounds for caution."
Speaking about a need for optimism, Mr Haldane added: "Some degree of caution is desirable - in how we socialise, shop and work - to prevent the spread of this awful disease. But we need at the same time to prevent healthy caution morphing into fear and fatalism. Pessimism can be as contagious as the disease - and as damaging to our economic fortunes.
"Avoiding economic anxiety is crucial to support the on-going recovery. This has important implications for how businesses and policymakers act and communicate."
He said good news on the economy is being crowded-out by fears about the future, particularly in reference to the strong third-quarter bounce back.
“We now expect GDP to be around 3-4% below its pre-Covid level by the end of the third quarter. In other words, the economy has already recovered just under 90% of its earlier losses.”
With the Chancellor having introduced the Job Support Scheme and furlough set to wind down at the end of next month, Mr Haldane was asked how long he thought the Government's current spending spree can continue.
And he said: "It is true that the Government deficit has picked up this year and for very good reasons - to provide the support we have all needed, businesses and people have needed to tide over this extra period of stress.
"The good news is that despite that pick up in the deficit and debt of the Government, despite all of that, borrowing costs during the course of this year haven't risen, they have in fact fallen.
"So the cost of servicing those higher debts and deficits have on average fallen over this period and that should be a considerable source of comfort."
He said we have "been here before and made it through".
"It's worth noting the history - Government debt [was at a similar rate] for the larger part of both the 19th and 20th Centuries.
"We've been here before and made it through - by growing the economy, and that's the way we will make it through this time as well."
