As I have just tweeted in response to the Bank of England's decision to raise interest rates to 0.75%, announced minutes ago:
It takes some considerable stupidity to see a crisis coming and decide to make it worse. But that's exactly what the Bank of England has just done by raising interest rates to 0.75%. The motto seems to be ‘if we're going to make a mess of things let's make it a really good mess'
As I said on Monday, when I suggested that the only reason the Bank might do this was to stop losing face for not doing so:
Pride comes before a fall. Raising rates now will help precipitate a fall. 'Normalisation' [of interest rates] is no more than belief in a dogma that glaringly obviously failed at enormous cost to the world in 2008. But Threadneedle Street has its pride, and we will all pay for it.
To support my argument let's look at fundamentals.
Real wages are falling, again.
The savings ratio is at an all-time low as households are under threat of being unable to make ends meet.
Growth is modest and is not reflected in consumer spending.
The labour market is not tightening.
There is no sign of wage pressure.
Brexit is reducing investment rates. And it is also creating situations of massive economic unease: no one needs to dampen exuberance when there is talk of troops on the street to ensure the maintenance of basic econipimic functions.
All of these suggest there is no reason for a rise now.
In fact the only economic indicator that suggests an interest rate rise is appropriate is the falling value of the pound, but it is declining as rapidly as the UK's trade prospects are. No interest rate rise will overcome Liam Fox's failings.
There is, then, no reason to increase rates this week. The most sensible move would be a cut in rates.
I stick by that. This is a mistake. I won't say it's a mistake of epic proportions: 0.25% interest rate changes cannot be so described. But the symbolic suggestion that the Bank thinks either a) the economy is strengthening when it so glaringly obviously isn't, or that b) rates need to rise so that they can be cut when things really go wrong next year, when candidly that will in the face of the Brexit onslaught make no difference to our well being, are signs of desperation in either case. And that's not what we need to indicate that a) the Bank is in control b) central bank independence is a good idea or c) anyone in charge has any real idea what they are going to do next year.
Worry.
That's the best advice I can give.
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I’m no expert on this sort of thing but I did listen to the radio today when it was announced.
It just does not make any sense at all. Unless it is a shot across the bow of high borrowing households?
But surely they can see that any rise just adds to those already indebted? It might curb intended spending but it will also add to the burden of existing debt which they are actually concerned about.
It’s as if they have had a meeting and decided to do something for the sake of telling everyone they are still here.
The more I think about this, the more I think it’s just BoE etc. providing some bullshit justification for fiscal retrenchment. There’s not much evidence that interest rate adjustments do much in the real economy anyway. I doubt central bankers even believe there’s any real efficacy according to their script.
9 – 0!
What’s the probability that all 9 members would arrive independently at the conclusion that now is definitely the time to raise rates?
0?
Bill Mitchell paints the picture of a short-sighted, stupid and greed based Tory economic policy based on ever-increasing consumer debt:-
http://bilbo.economicoutlook.net/blog/?p=39928
Obviously the rate hike is all part of the cunning plan to turn the UK into a developing economy since the pound plunged on the news:-
https://www.independent.co.uk/news/business/news/interest-rates-live-updates-decision-rise-uk-economy-mortgages-bank-of-england-latest-a8474156.html
They’re raising rates now so they can cut them when the brexit shit hits the fan. Otherwise, can you image the state of things if the BoE had to go into zero or negative values?
It’s a proper omnishambles….
The UK economy hasn’t recovered from the 2008 crisis and we are now so underprepared for the next crash we will be in very big trouble.
Who should set interest rates? Should control of the BoE, which is allegedly “independent”, and monetary policy be handed back to politicians?
Yes
Of course
We cannot have economic policy out of democratic control
It looks to me like a deliberate move to push the economy into a downturn so the blame can be heaped on Brexit.
I heard BoE was going to raise the interest rate. BBC news said it was because inflation was high (ie above the arbitrary 2%) and wages were rising. My immediate thought was bullshit. Inflation is trending down and wages need to rise given the savings ratio. My next thought was, I hate the current crop of journos who trot out press releases with zero criticality.