The fact that two members of the Monetary Policy Committee thought it appropriate to vote for interest rate rises now in the UK is, to me, little short of astonishing. Their justification was noted by the Bank of England as follows:
"These members noted that the continuing rapid fall in unemployment alongside survey evidence of tightening in the labour market created a prospect that wage growth would pick up. They noted that it was possible that wages were lagging behind developments in the labour market to some extent.
"If that were true, wages might not start to rise until spare capacity in the labour market were fully used up. Since monetary policy, too, could be expected to operate only with a lag, it was desirable to anticipate labour market pressures by raising Bank rate in advance of them."
So these members were willing to gamble the certainty of households going into insolvency, jobs being lost, recession returning and more to avoid a risk of inflation at a time when this is, in fact, declining.
One has to ask if there is an exercise in either insanity or sado-masochism going on here.
Thankfully these two members were outvoted this time. Don't expect it to last
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It’ll last until May next year. Carney is Osborne’s man.
Agreed
We use the phrase ‘Sado-Monetarism’.
After a while, this stops being funny.
I think it was William Keegan of the Observer who first coined that very apt phrase in the 80s.
on the flipside a massive housing crash would be very welcome to first time buyers. salary to house price ratios are stupidly high. and once the market has bottomed we could look at regulation to prevent banks effectively making us debt slaves til we die… a cap of say 3x joint salary to debt might be a good starting point.
sounds familiar. I think we used to have a cap like this when I applied for my first mortgage in 1970. Then Heath introduced competition and credit controls in 1971 where tie money supply was to be controlled indirectly by open market operations which led to a huge increase in the in the supply of money. My house went from £5000 to £10,000 in three years. However, the next one was bought was twice as expensive as the first one. My salary hadn’t doubled.
Would this be a sensible thing to return to or is the world too different now?
It would make complete sense
The BoE has suggested such controls – but at much higher levels
Indeed-we need the crash in house prices-it cannot come too quickly. The concept of ‘house as asset’ is ruining lives and economic activity and playing into the the world of debt securitization.
We’d soon see the economy grow and business flourish!
Toy will note that, the slightest perception that wages may be starting to rise (are they???) brings on calls for an interest rate rise.
House price rises are essentially causing inflation. The money pouring into commodities is causing rising food prices…not a peep! Could it be because the money men are making money out of this inflation?
Yet, as soon as there is the merest perception of wage rises, here comes the calls for interest rate rises.
I still believe they will move heaven and earth to make sure interest rates do not rise and stay exactly where they are.
They know rate rises will sink the economy. They are the only thing preventing a total collapse.
Time will tell if I am proved wrong, but they have made sure these historically low interest rates have been kept in place for 5 years. I have no reason to believe that they will change course now.
They know the “recovery” is toast and a crash is likely if the interest rate does start to creep up.
Unemployment falling rapidly? Seriously? Or are people just ‘dropping off’ the books?
Anthony: 900,000 benefit sanctions in one year – does that answer the question?
See: http://www.theguardian.com/society/2014/feb/19/record-number-sanctions-benefits-claimants
A very strange vote from 2 members of the MPC at a time when both price and wage inflation seem to be weakening, not strengthening. At the moment there seems to be a total disconnect between the headline employment rate and the strength of the actual economy… some of that is due to the increase in very low paid self employment, and the continuing pay cuts in the public sector also play a role, but I think what we’re seeing is a continuing raid by capital on the national output – a redistribution from workers to capital owners. It may well be that in this version of late capitalism, falling real wages are “the new normal”. Which is a terrifying thought.
Howard
We need to explore this in greater depth
Can you do a guest blog on it?
Richard
The ONS figures show that the bulk of the increase in employment since 2008 has been in low-paid self-employment. (See: http://www.ons.gov.uk/ons/dcp171776_374941.pdf.) Self-employment is higher now than at any point in the past 40 years. The rise in total employment since 2008 has been predominantly among the self-employed. They tend to be older than employees, work longer (45+) or shorter (8 or less) hours than employees, and average income from self-employment has fallen by 22% since 2008/9. The UK has had the 3rd largest %ge rise in self-employment in the EU since 2009.
In 2014, 4.6 million people were self-employed in their main job in the UK, accounting for 15% of those in work. An additional 356,000 employees had a 2nd job in which they were self-employed. 1.9 million people (8.7% of the workforce) were self-employed in 1975; 13% of the workforce were self-employed in 2008. ‘Total employment in the second quarter of 2014 was [1.071] million higher than in the first quarter of 2008, just before the economic downturn that hit the UK. Of this increase, 732,000 was among people who are self-employed, so the rise in total employment since 2008 was predominantly among the self-employed [68.347%]. The total number of employees rose by 339,000 [31.653%] over the same period.’
I presume you have seen this
http://www.taxresearch.org.uk/Documents/SEI2013.pdf