ANDREW Haldane, the Bank of England’s executive director for financial stability, risked the wrath of the City yesterday with claims that short-termism in capital markets is robbing the UK of vital social projects.
An increasing belief that long-term returns are valueless for investors is driving business leaders to avoid long-term projects such as infrastructure and high-tech plans, he said, describing it as a “market failure”.
“Our evidence suggests short-termism is both statistically and economically significant in capital markets,” he said. “It appears also to be rising.”
His analysis, in a speech co-authored with economist Richard Davies for a Brussels conference next week, is likely to inflame tensions with the City as companies turn to financial markets to raise billions for fresh investment.
Haldane attacked investors’ focus on dividends and quarterly market updates as causing companies to prioritise short-term outcomes.
Short-termism leads to “investment being too low and in long-duration projects suffering disproportionately,” he claimed. “These projects are often felt to yield the highest long-term private and social returns”.
Policymakers should intervene to deal with the problem, he said.