The world seemed surprised that the Bank of England did not increase bank rate yesterday. It should not have been. Nothing suggested that was appropriate.
The government is sucking money out of the economy as fast as it can by trying to balance its budgets.
As a direct result growth is suffering since government spending is a component of GDP.
Investment is tanking in the face of Brexit uncertainty.
Inflation is reducing as, entirely predictably, the impact of the Brexit rate change works through the system (simple maths makes this totally predictable).
And house prices are falling as the attraction of the UK as a location goes into rapid decline meaning overseas demand is falling and taking heat out of system.
Underneath all that consumption is reducing.
There are no reasons for interest rates to rise.
There could be grounds for a cut.
And there is massive reason for a fiscal policy intervention by boosting government spending, although giving lifetime visas to bricklayers might be necessary to achieve that as they are in cripplingly short supply (absurdly).
That a rate rise was even thought possible is how absurd some economic thinking is. Interest rate rises would make no sense in the foreseeable future.
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Well….. Brent crude has gone up 30 dollars a barrel since August last year.
Trumpantics in Iran is likely to keep the price up and maybe even push it a lot higher depending on what sort of Middle East chaos ensues. War zones might develop and spread across borders or if Trump starts whanging missiles about and disrupts Iran’s existing oil exports the Asian market is going to be short a million barrels a day.
That might produce a bit of inflation for the BofE, (might even get it up to the 2% target !) other than that fly in the ointment or a very unlikely change in government economic policy, hiking interest rates will just cause havoc I would have thought.
Market commentators seem to be obsessed with the idea that rates need to be ‘normalised’. I think they would do well to be careful what they wish for.
Maybe he is promoting financial viability for Scotland in the way the right wing see it 🙂
You look at the litany of people calling for a rate rise over the past year (and sometimes longer).
The same old names, with that same dreary neo-liberal ideological bias. Facts mean nothing to these people.
The economic catastrophe they continue to cause is a scandal.
How right you are Ben. One Andrew Sentance, a former member of the MPC and now a senior economic adviser at PWC, writing in Prospect just before Carney’s announcement and urging him to increase rates said this ‘ As we move into the tenth year of economic recovery this summer, the Bank of England MPC needs a clear strategy for raising rates, and stick to it even if there are short-term fluctuations in economic data. A May rate rise would be a clear signal that the MPC has grasped the need to embark on a policy of gradual interest rate increases. Putting off the decision once again would further undermine the credibility of the Bank’s approach to monetary policy, and add to the uncertainties surrounding the outlook for the UK economy . ‘ What a good job he’s no longer a member of the MPC, but I’m sure he fits right in at PWC.
Sentance is, to be blunt, an economic dinosaur
“Sentance is, to be blunt, an economic dinosaur..”
I think that’s an invidious comparison. Dinosaurs were forced to extinction by collision with an extra terrestrial object. They get a very bad press.
Humanity is likely to go down in Galactic history as the first species ever to make itself extinct by degrading it’s own environment to the extent that it no longer supports life.
Furthermore we have the technology to prevent a similar catastrophe befalling us and choose instead to use that knowledge to make weapons systems to destroy ourselves.
I’d say dinosaurs were pretty OK. Perhaps you could have chosen a more appropriate simile, Richard. 🙂
Sorry…..
I could not help laughing reading the commenter who thought that monetary policy was working just fine. The evidence is there in the data. Interest rates fell to 0.5 in March 2009 and the projections every year were that they would soon be back at 3% or more. But now we are 9 years down the track and we are still at 0.5%! We know from Japan, the EU, and the UK that monetary policy does not work at the zero lower bound. As we were saying the other day, fiscal policy is the only game in town now.
Indeed
Fiscal policy has always been the only game in town.
Bricks too of the traditional sort are likely to be in short supply. Let’s hear it for hemp bricks! Give it up for 3D printed houses! If we’re going to rebuild the country, let’s do it sustainably and train our guys in this new tech instead of importing people already familiar with the old tech. Then when they’re proficient, our guys can work abroad, command good rates, send some home to the UK (if there still is one), putting the boot firmly on the other foot. Tremendous opportunities here. Oh yes, and talk of rate rises? Theatre to disguise the fact the BofE has already shot its one bolt, and not even come near its supposed target. Waffle… #yawns… the BofE; didn’t they used to be, yannow, somebody, years ago?
I have to say our dedication to bricks is bizarre
The UK housing problem epitomises the failure of markets to contribute towards a better society. Building with traditional bricks in the 21st century is bizarre, to say the least. A progressive government would and could invest directly with the private sector in order to provide homes for everyone who needs one. While I’m not au fait with the financial model for the housing industry (from land to finished product) it seems logical to assume that the prevailing (neoliberal) objective is the maximisation short-term profits for investors, with no regard for society’s needs. Maintaining a supply shortage of genuinely affordable homes also keeps prices and profits up, sustaining a bubble long after it should’ve burst.
Not for the first time the Chinese appear to be leading the way: “10 Houses Printed in 24 Hours” – https://www.youtube.com/watch?v=WzmCnzA7hnE. Even using more conventional materials they have constructed a 30-Story Building 15 Days – https://www.youtube.com/watch?v=rwvmru5JmXk.
The only thing stopping a UK government from implementing such programmes, in co-operation with the private sector, is political ideology. John Harris argued the point in more detail than I’m able to – https://www.theguardian.com/commentisfree/2018/jan/22/solve-uk-housing-crisis-new-houses.
Bill Kruse says:
“..the BofE; didn’t they used to be, yannow, somebody, years ago?”
Top of the world, Ma !
Bill Kruse says:
Let’s hear it for hemp bricks!
Ah, but the law of unintended consequences, Bill.
I envisage a spate of arson attacks by hippies. There’s no smoke without fire 🙂
giving lifetime visas to bricklayers might be necessary to achieve that as they are in cripplingly short supply (absurdly)
Another of my bete noires. I think the country is full of skilled brickies, currently driving taxis & stacking shelves since the last bust. The building industry doesn’t have any employees – everyone’s a contractor – so there’s no staff retention between booms. Then the industry only hires youngsters and complains about a skill shortage.
Mike says:
Another of my bete noires.
Sorry, Mike, I seem to have put on my pedant hat when I got up this morning….
If you’re going to adopt the British Empire cultural imperialist tradition of claiming English as the lingua Franca, I think that has to be ‘betes noir. But if you are going to be a good European and accept that foreigners have a right to screw about with language so nobody else can understand them, then it has to be ‘betes noires’ I think. 🙂
Hmmmm….
The ref go9t his book out here, licked his pencil and put it away again
But….
On your comment of bricklayers I noted this week on tv pictures I saw
https://www.youtube.com/watch?v=MVWayhNpHr0
https://www.mirror.co.uk/tech/bricklaying-robots-set-replace-thousands-10107529
I do agree consumption is reducing people arent spending or going out. Greggs report this week is an example and the high street is in a deep recession. Is this too much consumer debt. or are waiting for wage growth which is needed to help society out.
then you have the problem of the big consumer companies and in return companies like WPP. The merger of Asda and Sainsbury they said was to reduce costs on the bigger suppliers. Okay then they are affected and the companies that supply them are affected. Also affecting smaller suppliers into bigger chains.
I still feel in housing the london tax changes has affected that market. Whilst I dont expect you or anyone to agree with buy to let when the return is reduced property is overvalued.
Its all like a bit coin anything in life is worth what another person is willing to pay for it.
Paul says:
“…Its all like a bit coin anything in life is worth what another person is willing to pay for it.”
……or of course ‘able’ to pay for it. Which is not quite the same thing.
I recall you saying in 2015 ” Interest rates are staying exactly where they are for a good while yet”
Good luck with getting those planning chitties otherwise those brickies will be lying idle – there’s only the CPRE, the Conservative Party, the Green New Deal guy, and all the farm subsidy milkers and landlords in the HoL to get past. All of them believe that you should build absolutely nothing anywhere except on perhaps the most contaminated and expensive to work land types.
Cynicism is not much contribution to debate
Rod Hull says:
“Good luck with getting those planning chitties …….”
I think it would make very constructive difference to the availability and price of building land if we had a well geared Land Value Tax.
As you imply vested interests are freeloading at present and have the rest of us by the short and curlies.
Laws and taxation policies are written by the wealthy and powerful to consolidate their advantage over the rest of us. So much cheaper for them than having to keep a liveried, private army as they once would have done.
Back in November you were saying that raising interest rates to 0.5% was a bad idea.
Your opinion seems to be validated by the Q1 growth figures and April indicators.
Can you tell me if the rate rise in November is likely to be a major conributory factor in the current slowdown? If so why is this not mentioned in the press and why does the Bank of England get such an easy time of it by our media?
The message of an increase in November sent all the wrong signals
But let’s be clear – most of the media still believe there will be an increase so they do not give them a hard time
Hi Richard, this is off-topic for this thread, but it’s (for me) a burning question that I’d like to put to you:
to what extent would a future Labour government really be constricted by EU rules, and prevented from implementing its policy agenda? The current Labour leadership are clearly concerned enough about that prospect to resist calls for staying in the single market, even though to call for SM/EEA membership now could be a decisive political intervention that could finish the Tories. Others, like Neil Kinnock, say the SM offers no such threat. Which is the truer? I think I read somewhere that SM rules dictate that the French and Germans are going to have to finally liberalise their railways next year, after resisting this for years. Could the UK be in the EEA yet accommodate to SM rules in such a way that Labour policies could be successfully implemented? Is SM membership really incompatible with state interventions such as renationalising the railways,the NHS, utilities etc?
The simple answer is we don’t know
It is said that the EU is going to enforce rail privatisation. Really?
It was said it would never allow QE. A trillion Euro later of course it happened
And the reality is that across Europe there are state railways, and I see no chance of that changing
There is also considerable state subsidy to business
And I see no chance of that changing
And in the EEA there are more freedoms
I candidly think Corbyn et al are claiming a need for extreme compliance to have an excuse to leave on ideological grounds
Actually the EU works on pragmatism and there is no need to think that there is any threat in my opinion
QE could continue
So could PQE
And we could suppiort industry as happens across the EU
Perhaps in historical retrospect the hallmark of Neoliberal ideology, particularly in regard to economic and monetary policy, will be seen as a reluctance to learn about the factors underlying outcomes in any depth. After all the incredible success of the human species, as opposed to other species on the planet, is its ability to engage in a high level of cooperation. To engage in cooperation, however, trust is required but if inequitable policies are pursued and allowed to impinge on majority well-being, be it material or psychological or a combination of the two, trust cannot flourish.
Exactly. A survival of the fittest, selfish individualism is the essence of neoclassical economics, whereas it is cooperation that allowed us to escape from the jungle: or as some business types like to quote: “if you want to walk fast then walk alone and if you want to walk far then walk together”.
But this is an oversimplification as you can enrich yourself by only cooperating with a select group at the expense of other groups. This also erodes trust and if taken too far leads to war or revolution. Democracy should protect us, but not when a select group has the ability to distort the democratic process.
Charles Adams says:
“….. A survival of the fittest, selfish individualism is the essence of neoclassical economics, …”
Since the idea was put into my head I can’t help wishing that Richard Dawkins had chosen to call his book ‘The Cooperative Gene’. The text would be exactly the same.
We might have been living in a different world now.
Likewise the 20th Century might have played differently if Darwin had thought of a better way of explaining what he meant by fitness. Or perhaps if more people had read the work of both men beyond the covers.
I like it…