Central Banks Have Work to Do to Regain Their `Special Sauce'

(Bloomberg) -- The financial crisis, global recession and a long, slow recovery have dented public faith in central banks and it's going to be a hard slog to win it back, according to the Bank of England's chief economist.

In a speech on Tuesday, Andy Haldane said credibility and trust are the “secret sauce of central banking” and there is no quick fix to regain them. That's partly because of resentment among people about slow wage growth, faster inflation and the perception that whatever spoils the economy offers haven't been shared equally.

It's a familiar refrain from Haldane, who's previously described economics as insular and admitted its forecasting record has been questionable at times. He also famously compared economists before the 2008 financial crisis to Michael Fish, a U.K. weatherman who in 1987 wrongly predicted that a deadly hurricane wouldn't reach Britain.

“An economy or financial system without trust, history tells us, ceases to be a system,” Haldane said. “An economic or financial policy maker without credibility, history tells us, ceases to be a functioning policymaker.”

For the BOE, part of the solution is engaging with the public, and Haldane noted its visits to schools as well as meetings with people and businesses around the country. The next step will be the creation of “citizen's panels” to engage directly with the bank on economy, financial system and policy, he said.

That was a recommendation of the Royal Society for the Encouragement of Arts, Manufactures and Commerce, which hosted Haldane's speech.

“There is no single measure, nor quick fix, for closing these twin deficits with the general public” he said. “The supply chain for secret sauce, of building and restoring trust and understanding, is long and arduous.”

Haldane didn't comment on monetary policy. The next BOE decision falls on March 22.

--With assistance from Jill Ward and Lucy Meakin

To contact the reporter on this story: Fergal O'Brien in London at fobrien@bloomberg.net.

To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net, Brian Swint, David Goodman

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