Costas Milas's picture
Affiliation: 
University of Liverpool
Credentials: 
Professor of Economics

Voting history

The Impact of the Russian Invasion of Ukraine on the UK Economy

Question 1: Relative to the Bank of England’s planned trajectory for interest rates at the beginning of the year, the Bank should respond to geopolitical events by:

Answer:
Raising interest rates more slowly
Confidence level:
Confident
Comment:
As I explain in a recent piece for The Conversation (https://theconversation.com/interest-rates-are-likely-to-rise-by-much-less-than-most-people-are-predicting-179326), pooling information from economic, financial, pandemic and geopolitical risk results in lower interest rates compared to what financial markets currently predict. This is because rising uncertainty will harm UK economic activity.

Surging Inflation in the UK

Question 2: Will the inflation surge of 2021 prove persistent?

Answer:
No
Confidence level:
Confident
Comment:
Inflation will not be persistent provided that the Bank of England responds. What many seem to ignore, however, is the possible impact of the conflict between Russia and Ukraine. Rising and perhaps persistent geopolitical risk is not a ‘friend’ of the (global) economy. Putin’s policies and, consequently, economic sanctions against Russia have the potential of harming the Russian economy. These policies can also create contagion effects for the rest of the world which might delay interest rate rises.... How likely is this? A reasonable way of answering this very question is to look at the exposure of international banks to Russian private and public debt. Data from the Bank for International Settlements provide some very useful information. The exposure of selected banks around the world to Russian private and public debt is fairly low. For instance, the exposure of British banks and US banks is very low at 0.06 per cent and 0.37 per cent, respectively. Notice, however, that the exposure of Austrian banks to Russian debt currently stands at 3.6 per cent (of their total exposure worldwide) and that Italian banks have a 2.7 per cent exposure to Russian debt (results for Italy are not available after 2018Q3). All of the above seems to suggest that we should not worry too much about possible contagion effects through the banking channel. That said, the exposure of Austrian and Italian banks is arguably of some concern and therefore, if Russia invades Ukraine and economic sanctions are imposed, there is a slight(?) risk that economic pain will also be felt in Europe. Do not underestimate this very risk and its impact on monetary policy in the UK (and elsewhere)!

Question 1: Which of the following factors is the primary reason for the rise in inflation in 2021?

Answer:
Supply constraints
Confidence level:
Confident

Towards a High-Wage, High-Productivity Economy

Question 2: What is your evaluation of the following statement: “A well-designed government-stipulated wage increase can lead to higher productivity”?

Answer:
Disagree
Confidence level:
Confident
Comment:
As (joint) work of mine (https://blogs.lse.ac.uk/politicsandpolicy/brexit-and-the-productivity-puzzle/) discusses, productivity and (real) wage increases take place through lower business investment uncertainty.

Question 1: Which of the following statements most closely reflects your understanding of the relationship between productivity and wages.

Answer:
No opinion or other
Confidence level:
Confident
Comment:
Productivity is the main driver of wage increases and then there is some subsequent feedback from higher wages on productivity.

Pages