This is the new GDP data for the UK, out today:
To add to that decline, personal debt data remains worrying.
So, in that circumstance what the heck is Mark Carney doing suggesting interest rates might rise? Where is the risk he's addressing, especially when Brexit inflation will begin to fall out of the data soon?
I just don't get his logic.
Tell me.
Do any Goldman Sachs alumni think logically?
Logic?
Maybe he regards the prospect of a Labour Government to be imminent in which case we might regard this as ‘forward guidance’ of an intended scorched earth policy?
OR…maybe the deal at Jackson Hole was that Yellen would try balance sheet unwinding, Carney would try tweaking interest rates and Draghi would …? er…? watch to see what happens? ECB is still doing QE isn’t it? I’ve lost track.
I like that
Which?
All three
Expecting logic from him will drive you crazy – https://www.youtube.com/watch?v=Nt9VMCT9JRc&t=0s
John D, did you watch the follow on – Richard Werner?
https://www.youtube.com/watch?v=EC0G7pY4wRE
I think his logic is probably impeccable. But his assumptions are at wide variance with reality and so perfectly logical conclusions can lead to utter disaster.
Make life difficult for a future for a labour government? Unless Labour are willing to embrace all out People’s QE, they’ll be constrained in spending by the cost of borrowing.
I think we both must be too devious to be allowed out, Nigel.
Just because one is devious doesn’t mean one is wrong :-). Timing is way too suspicious.
Neil,
I’m not sure about the timing.
Two things could precipitate an election. The court case challenging the legitimacy of May using public funds to ‘bribe’ the DUP which is, in real terms, a bill that should be picked up by the Tories since they were buying votes in the House (except that would be a bit blatant – but what the hell? Except they don’t have the cash – not that sort of cash) It’s an expensive bribe as it stands because it isn’t carte blanche to back every Tory whim; and the situation in NI is delicate to say the least. So delicate that if Sinn Fein had no principles May didn’t have a majority. (That’s what the UK government has never understood about IRA and Sinn Fein – they are not pragmatic they are principled. You might not like their principles, but at least they have them.)
The other thing that would bring on an election is the settlement of the (alleged) election expenses fraud issue. If those cases are made and found to be sound the government is dead in the water. Is it twenty four cases under investigation? Suspicious amount of foot dragging going on there. You’d think one or two cases might have been established or dismissed by now even if some are going to take a lot of investigative work. It’s not a class action as I understand it. technically it’s 24(?) separate cases. It would be a bit odd if they all happened to come together at just the same time.
Mark Carney couldn’t know the results of those issues yet could he? I don’t think so. Even the most rabid conspiracy theorist doesn’t believes this shower capable of such a level of co-ordinated action.
So…. Mark Carney’s motivation ( I hesitate to refer to it as logic) is something else.
Apologies for this, Richard. It’s all politics and bugger-all to do with economics therefore ‘off topic’.
On the other hand…what has BofE policy to do with economics? (I merely ask.)
A good question
It has everything to do with political economy
It’s a(nother) feint. Raising expectations of higher interest rates makes future rate hikes less necessary.
Mervyn King delightfully called it the Maradona theory of interest rates. Paraphrasing King: Against England in 1986, Maradona ran 60 yards and beat five players before placing the ball in the English goal. Yet he ran virtually in a straight line. How can you beat five players by running in a straight line? By making them think he was going either left or right, Maradona was able to go straight on.
King’s speech from 2005 http://www.bankofengland.co.uk/archive/Documents/historicpubs/speeches/2005/speech245.pdf
Indeed, this will be theatre, like the last time he suggested an imminent interest rate rise, and the time before that, and the time before that… #yawns… perhaps too, after retirement he contemplates a second career in panto, being bought on just before the Ugly Sisters, say, and after Captain Hook; “Why, it’s former BofE Governor Mark Carney everybody!” (Enter Carney, with his catch phrase;) “Interest rates are to rise” (Audience; “Oh no they’re not!”).
They won’t, either.
I enjoyed that, Bill. Nice mind picture. A cartoon in words.
Perhaps Carney wants to put up interest rates soon, so that he can be seen to be acting wisely by lowering them again when the inevitable recession hits?
Otherwise, what ammunition will he have?
But do you really think he’ll raise them, or is it just talk, as it has been for years now?
I think he will raise them
I think they will get to 0.75
Maybe just 1.0
And next year, about Novmbee time, they’ll be back down as the full Brexit failure to agree hits the fan
There is, according to some of a Cassandric disposition, the likelihood of interest rates going into negative territory.
Pushing interest rates upwards at this stage in a period of fragile (possibly illusory) growth is just the sort of policy initiative that could precipitate that. If the theory that it takes a cut of 3% to reverse recession has any foundation negative rates are a given.
Again (or still) we’re in uncharted waters because there is no precedent for a recession in such a low interest environment so all bets are off.
Here on Planet Earth night will follow day. In my personal monster Keynes Theory diagram from the 1960’s there are a lot of things interweaving. In other theories the same applies although there are differences in the ideas about how this or that works or do not, depending on circumstances. But, and a big but, among those many things are Savings and also Rates of Interest. So, if you decide to flat line rates of interest while at the same time fiddle around with the various forms of savings, things will happen. I say no more nudge nudge as successive PM’s have said to Chancellors and the Bank of England.
What BoE maybe worrying about is the reality on the ground that wage inflation may really be going to appear at the bottom end. Manufacturing employers I am talking to all report real labour issues and vacancies they cannot fill/cover across unskilled and skilled. Agencies are saying they think they will be 30% short of labour requirement for Xmas. This has not been an issue for years. Lack of scale of EU migrant labour in and trickle out. As much down to exchange rate as uncertainty. Zloty gone 6.5-4 ish makes a big difference for short term labour sending home money.
So Brexit really is biting on our productive capacity. It is going to be a very difficult balancing act between GDP and inflation.
I think you hit the real issue
But right now we need wage inflation
People have suffered for too long
And wages are massively undervalued compared to assets so redressing is required
But in that case the BoE should be asking for an increase in the target inflation rate and not a rate rise
I feel a blog coming on
A rate rise makes as much sense as holding the 2018 World Cup in Puerto Rico. Carney needs to understand a economy based mostly on the service industry is a disaster waiting to happen. At what stage do large trade deficits ring alarm bells?
[…] Carney appears to want an interest rate rise. I think this is economic madness. I have a different policy proposal to make in its place. I […]
I’m not saying Tim MIlls (above) is wrong but I am yet to be convinced of any labour shortage.
It may be more likely that the BoE is using current (Brexit, cost-push) inflation as a pretext for an interest rate rise that they wanted anyway.
Which leaves us with why they want it. I think that they are caught up in a mire of knowing that they have caused asset-price inflation and wanting to correct that but also knowing that their actions, if strong enough, could burst the asset-price bubble. In the meantime they grasping for some sort of confused compromise.
That they can then reverse
This last point is key
They think current actin will have little consequence but are seeking a tiny amount of future fire power
And in reaching for that fire power possibly trigger the crisis that they are hoping to prepare for. Such irony. Its almost like a Greek or Shakespearean tragedy.
I know you that you may disagree with this, and I respect your reasons, but I’m tempted to think
(putting it crudely) that the bubble is there. It’s going to burst or deflate anyway. Let it burst and let it burst on the Tories’ watch.
Ther Tories will rue winning (?) on June 9
Marco,
“…but I am yet to be convinced of any labour shortage.”
The Labour shortage is there, but it’s not real. It’s not that the bodies aren’t available (though Brexit is creating alarm amongst European immigrants/guest workers which doesn’t help) what we’re experiencing I think is the workings of the market biting back.
There is never a shortage of work, but there is frequently a shortage of ‘jobs’. Labour is a market commodity and therefore price sensitive. Wages are too low to sustain a decent living standard which is why we have the ‘working poor’. Not an entirely novel phenomenon (see the works of Charles Dickens and others) but nonetheless disgraceful in this day and age. Rationally if work don’t pay you don’t go to work. Going to work is costly it’s cheaper to hunker down and accept austerity.
The neoliberal (paleoconservative) response to this is to force people further into poverty through the assault we’ve been seeing on the benefit system. Universal Credit is the nuclear option. The button has been pressed.
What we are seeing is the polar opposite of what IDS ‘said’ he was trying to achieve with Universal Credit.
Yeah, but what else other than the polar opposite of the truth can you expect from IDS? Here he is in the Mail in 1994, outlining UC, the benefit he’s supposed to have thought of only after his (reputedly staged) visit to Easterhouse years later http://benefitscroungingscum.blogspot.co.uk/2012/05/ids-his-welfare-reform-zeal-so-much-for.html
Bill,
Thanks for the IDS link.
Much of the IDS analysis of the problems is spot on. Shot through with weasel words and weasel sentiments however. Many of the conclusions he comes to are seriously lacking in understanding in both senses – compassion and rationality.
He exhibits the cynicism of one who is well versed in gaming a system and assumes everybody is similarly unscrupulous.
I think I’ve maybe swallowed too much of the mainstream propaganda of the time without regard to interpreting what he was proposing and how it would be implemented. Perhaps I was in work at the time …or beyond caring. I’ve been there too.
I suspect the DWP costs more to operate than it dispenses.
BTW. Since when did statutory benefits become discretionary.? They are now – discretionary on the goodwill or otherwise of frontline staff who can invoke sanctions according to which side of the bed they got out of that morning or for that matter which MSM rag they read.?
You will have seen ‘I Daniel Blake’ I expect. (Personally I have not been treated badly, but then I’m middle class, by education if not by income)
I believe the line ‘at the discretion of the SoS of the DWP’ was added in 2012. Jobcentre workers are his/her representatives. Thus, benefits you had previously been entitled to in law were no longer your entitlement, they were to be granted at the whim of IDS, or whoever was SoS, or their virtual nodes at the jobcentre. Claimants are no longer innocent until proven guilty, then, for the DWP which has serious implications, I feel, for everyone else as it’s a breach in what was previously a wall. Just an accusation of wrongdoing can result in claimants losing up to three years of benefit. It’s then up to claimants to prove innocence, difficult with no resources.
Andy,
“There is never a shortage of work, but there is frequently a shortage of ‘jobs’. Labour is a market commodity and therefore price sensitive..”
I know that you are generally well-informed and your heart is in the right place but what you seem to have suggested there is the dirty old neo-liberal angle on the “reservation wage” concept. The idea being that people won’t have adequate incentive to take low-paid work because the wage on offer is too close to the income level that they are already receiving on benefits.
http://marketbusinessnews.com/financial-glossary/reservation-wage-definition-meaning/
This dishonestly ill-conceived nostrum serves two basic purposes with one being unemployment denial and the 2nd being an excuse to cut benefits. The simple statistical fact of the matter is that the number of unemployed exceeds vacancies available:
https://www.theguardian.com/news/datablog/2012/feb/06/unemployment-vacancies-ratio
If a real labour shortage does occur (vacancies > applicants) then wages will rise anyway.
Sorry about the late reply (too many distractions abound).
Marco fante,
I absolutely agree with what you are saying.
This disconnect between jobs and work invites the classic right wing knee jerk ‘starve the buggers back to work’ response.
What you call ‘dirty old neolib’ is the default reflex of those who don’t actually work for a living, they either inherited, get it from rent (in its wider sense) or are accustomed to being paid considerably more than a living. It is an attitude which a lot of ‘honest working folk’ also hold (they’ve had generations of indoctrination by church, state and the wealthy professional and social elite) and which the neolibs find very easy to tap into and induce a sense of guilt and shame or smug virtue accordingly. (Clegg called them ‘alarm clock people, the current tag is ‘hard working families’. These people, ‘ordinary people’ very much buy into the idea of ‘standing on their own two feet’. They want nothing more than to earn their keep because that is what makes them valued and respected members of their local and wider community.
The problem comes when their ability to work within the prevailing economy doesn’t pay. There is no default option to return to their vegetable patch and see out the hard times. Their utility bills don’t stop. None of the bills stop. They are not able to be ‘austere’ and make economies because the structure of society doesn’t accommodate that. In extremis they don’t even have the option of handing their keys back to the mortgage company – they can do that in the US, but here the financial system is so dominant (and bent) that they do not accept the security of the property. That’s represents a total breakdown of the implied or actual contract.
Cancel your phone contract? Nope can’t do that – fixed term contract.
Cancel car insurance? Nope can’t do that – cancellation fee and so on …
It’s because this poisonous philosophical baggage of ‘protestant work ethic’, where politics and religion in their worst manifestations overlap, is so ingrained that there is an almost total failure to comprehend the rationale of the UBI.
UBI is probably as difficult to ‘sell’ to the people whom it would benefit most as it is to get past the wealthy.
Traditionally half the population did most of their work for nothing. They were wives and mothers and housekeepers (homemakers). They held the social fabric together totally unrecognised. Feminism unfortunately didn’t so much beat ’em as join ’em. On the treadmill.
I’m not sure even PQE is enough to break the orthodox stranglehold of the work ethic we have inherited. Thatcher summed it up as ‘if it isn’t hurting it isn’t working’. (Though that isn’t exactly what she was talking about at the time.)
If work don’t pay, wages are too low. Any other interpretation is bollox. And bollox is the lingua franca of politics. (and religion, but let’s not go there at the moment.)
Economic theory suggests that the heavy and dirty work attracts a premium. So much for theory.
Tim Mills
This comes down to the real, unsayable, issue doesn’t it? We still have over 1,000,000 unemployed people so why can’t they fill he unskilled roles? The Daily Mail will say they don’t want to work, but they may not be able to work because they’ll require NMW & a lot of the employers will be used to paying well below that.
In fairness, I always say the real unemployment level is at least 500k below the ‘official’ level. If they legalised weed you’d see a very different picture.
I have to say that’s an unjustified cynicism
I’m not sure the cynicism is unjustified.
I actually disagree with the unemployment estimate I think the real figure, certainly in terms of man-hours (which I think we have to call full time equivalent or something of the sort), is actually 500k the other way.
We have no measure of underemployment.
Legalise weed? Yes certainly, but it won’t fix the unemployment figures.
As to what the Daily Mail might say ….my contempt is absolute – and for the people who believe it.
Danny Blanchflower has developed measures of underemployment
Just look at excess, low paid, self employment for a start
I may have misunderstood eric the genius’s unemployment guesstimate. Did I miss a sort of double negative?
“excess, low paid, self employment for a start” which brings us yet again back to IDS, the man who created this situation by – at arm’s length, of course – advising the unemployed on JSA they’d be endlessly sanctioned unless they took up ‘self-employment’ in which case they’d be left alone, thus creating an army of unemployed wrongly but politically conveniently categorised as self-employed. Britain’s per capita productivity figures went through the floor around this time, it’s not hard to see why. Smith ruins everything in the real world he’s allowed to go near and always has done. It’s hard to see why any ministers from any government which includes Smith should be saying it’s Boris who is unfit for office. I mean, obviously he is, but equally obviously there are others equally deserving of expulsion by any government wishing to present itself as responsible. Why stop at Boris? Kick them all out and people might start treating the Conservatives with some respect again.
@eriugenus
You are fundamentally right in suggesting that unemployment levels indicate that there is plenty spare capacity in the labour supply and a genuine labour shortage is not a real prospect. We could, however, split this down the middle and say that a transitional labour shortage is possible. If that leads to some wage rises then well and good as Richard suggests. There should be no rate rise in response to that.
Danny indeed!
The father of my little primary school friend used to call him ‘Danny Belly Cauliflower’. Odd, the silly things you never quite forget.
Richard
a reply might be “if not now, when?”.
You keep pointing out that there are alarming bubbles of household debt. Well, if mofuggas think they can borrow indefinitely for nothing & need never repay it then, damn right, there’s going to be a lot of debt out there!
I’m always reminded of the 2008 crisis & Robert Peston’s blog. When he broke the ‘Northern Rock’ story a lady replied;
“I won’t hear a word against Northern Rock, they gave us a mortgage when no one else would touch us”
& then they fell over, quell surprise
and, astonishingly, having driven the bank he inherited over a cliff, the ex-MD turns up in the Telegraph making political comments! You couldn’t make it up! If I was him I’d have gone into a dark room with a loaded shotgun & not come out or, at the very least, relinquished all earthly commitments & joined a holy order.
Back in the day, I used to have a subscription to the Times (know your enemy and all that stuff) and you could rest assured that any article in there by Ridley would be absolute tosh of the lowest order. Even much of his writing on scientific matters seemed nonsense to me which is surprising given his background. The fact he has the gall to pontificate about matters economic to this day shows a vast level of brass neck, not to mention a startling lack of self awareness.
Another notably useless columnist in the Times who was invariably deluded in almost everything he wrote was Michael Gove. Unfortunately, something he carried forward into politics from journalism to the detriment of many areas of our society.
Despite this, they are both rank amateurs compared to IDS, a man so useless as Tory party leader that they subsequently decided to put him in charge of welfare and put millions into poverty.
Mariner,
I agree with your assessment of Matt Ridley on any matter economic or financial on the basis of his obvious dereliction of duty at Northern Rock. I gather his board position was a sort of inherited sinecure. Clearly lacking scruples and any sense of shame.
I did however find his ‘Origins of Virtue’ and ‘The Red Queen’ very interesting and illuminating at the time I read them. Perhaps I would find them tainted now and be more questioning of their value?
Hello Richard,
I guess this means you are still on course to be right that there will be recession in the UK this year. Why does nobody listen to you?
I may be wrong
The message mat be unpalatable
Why should they?
I don’t know why they won’t listen. You predicted recession every year from 2008 so I hope they listen or soon you will be predicted right as always.
I thought you were trolling….
This is the man who isn’t sure how to spell his own name…. remember?
I do
He won’t be appearing again