These are from my Twitter posts after this lunchtime's decision to raise Bank of England base rate by the Monetary Policy Committee:
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Spot on, Richard.
Instead, what we are getting from them is the monetary equivalent of “the beatings will continue until morale improves.”
Good Afternoon,
Maths / economics has never been my strong point; apologies if this question is nonsense.
Is my understanding correct in that:
1) Inflation is caused by rising prices; rising prices caused generally by shortage of some product or service;
2) The current inflationary pressures are largely/wholly supply-side (ie the supply of natural gas etc) as opposed to consumer-side (eg wage demands etc), therefore;
3) Until the supply-side has more supply (ie more products and services), inflation is likely to remain high, therefore;
4) Base rate rises are only going to have the negative effect of pushing up prices of products and services, which in turn is likely to lead to job losses.
Dave
1) Or speculation and profit taking
2) True
3) Profit taking continues
4) That is true
They really are just doing the same thing over and over again and expecting a different result each time. Surely at some point someone inside the BoE must have raised their hand and asked “this doesn’t seem to be working, should we try something else?”
To paraphrase Noam Chomsky, if they were capable of sensing that, they wouldn’t be inside the BoE.
Stopped clock sydrome. Wrong nearly all the time but the occasional good result reinforces the practice.
Genuine queston for anyone on here – what about the impact on Sterling should interest rates be reduced? (btw I think they should be reduced to help people)
Marginal
Growth is much more important
The kneejerk reaction would be down…. but since it might save the economy from recession the down move might well be temporary.
I think “high rates, strong currency; low rates, weak currency” is wrong…. FX markets buy currencies with the right rate policy.
Nothing to add and spot on.
Look no further than the background and experience of the individuals on the committee to get some insight into why they take such poor decisions ,the consequences of which have little or no impact on them.
I seem to remember from the old factory notice, it was Friday afternoons when the beatings were administered.
Perhaps they’ve moved the day they’re to be administered now to Thursday mornings?
As recently as 19th January, Andrew Bailey said on a visit to Wales: “…. we have had a very big real income shock to the country, which obviously affects the situation. And working our way through that shock, and the inflationary impacts of that shock, is important. That is why I am afraid, and I know we have been marked down as a pessimist by saying, as we did in November, we think there will be a recession…..
It has unfortunately got the characteristic of being long, but shallow”. Well, the one thing thst didn’t last long was – the forecast. Failed again. He also spoke of being at “the beginning of a sign that a corner has been turned.” I cannot even follow the connection between the forecast and the corner.
It is March, and now Andrew Baileys says there will be no recession, shallow or long; but we have had a big interest rate rise shock (we have actually had ten rises I think, in ten months – an illustration they are groping forward in the dark). The corner turned seems to be into a blind alley. One day the Governor of the BoE thinks we are going into recession; a few weeks later? Oh, no we won’t scarcely establishes his credentials, or his opinion as authoritative, or just persuasive., or even basically plausible. I understand the problem, but what I do not understand is the desparate impluasiblity of the continuing assertion of insight. Clearly, he simply doesn’t know. What seems especially odd to me about this change is that in January the turbulence in the banking sector was not even noticed (although something adverse was happening – they just hadn’t noticed); but with no growth, and still rising inflation (the BoE’s bête noire – even if they have absolutely no influence on the causes of the real rise, or the causes of the real fall – whatever they do with interest rates); and suddenly, without explaining any reason for the ‘volte face’ there will be no recession. The world is a mystery; not least, it seems to the BoE.
Hilariously, an economist on C4 news (presumably invited as an expert for comment), asked for an opinion on whether or not there was going to be a recession, given the uncertainty of financial opinion, appeared to confess that she really didn’t have a clue; honest, no doubt but not exactly helpful. It does raise the point – why ask an economist?
The BoE is a stark case of the blind leading the blind.
The kind of QE that central banks engage in i would rather do without, I want it directed at long term infrastructure projects that will raise supply side capacity.
Monetary policy is a very blunt tool. We needed to remove some froth from the financial system after covid to allow supply and demand to catch up, what we don’t need is a blindfolded central bank raising rates for the sake of keeping the financial markets happy. Central bankers talk about keeping monetary and fiscal policy in alignment when it comes to stimulating the economy so the same should apply when we need to take some froth out: we could have rates at 2% with a windfall tax on high earners to bring us back to some sort of equilibrium.
What you are talking about is nothing to do with QE, you basically want to print money to invest into infrastructure. That may or may not be a sensible thing to do, but it’s not QE!
Wrong: that is QE
Nothing says QE is about only buying government debt
Japan proves that
Theres an election coming up on the horizon. What’s the bets taxes and interest rates will be dramatically cut in the run up….?
I doubt that will happen
Good Morning.
The BofE has only one main tool to “control” inflation that is interest rates. The other tools are in the hands of the government in the form of fiscal policy. Clearly, increases in interest rates suppress consumer demand and may inhibit profit growth and employment numbers. Another factor to take into account is full employment which currently exists. In many sectors people just cannot be found to fill vacancies – which partially reflects skill shortages but also people leaving the workforce to economic “inactivity” following COVID and BREXIT. Clearly such people have enough money to survive. It seems to me that these is an imbalance between demand and supply and the only short term monetary tool is via interest rates. Historically interest rates are not high. Could not the economy tolerate some contraction? – displaced people should be able to find other work given the high level of vacancies (it is not like the early 80s when there were + 3m unemployed!). House prices have grown to unaffordable levels in many parts of the country stimulated by QE an very low interest rates. The problem of housing supply has not been properly addressed by successive governments. Do you not think that the risk and enduring population impact of high core inflation has to be countered by modest interest rate rises at least in the shorter term?
This is absurd
You ignite that the Bank of England has QE and QT available to it
You assume the U.K. is a closed economy
And you assume all labour is transferable when it comes to skills
I suggest you get out a bit more
Maybe without the silver spoon on display either because you are obviously clueless as to what confection means fir millions of people.
Its astonishing how people can be imprisoned for victimless crimes and yet the wilful destruction of an economy has no legal consequences… How many people are suffering as a direct result of these frankly idiotic policies, and to what end? Bailey is clearly educated enough to see the consequences of his actions, and yet still continues to raise interest rates to these absurd levels…
I don’t give a hoot for GDP or “balancing the books” or “fiscal rules”, and yet somehow the politicians imply that it’s my fault that GDP isn’t going up and the economy isn’t growing, as if a growing economy is the thing that burns foremost in my mind and keeps my nose relentlessly to the grindstone every day. Indeed, why should I care or desire growth when, as far as I can see, such growth results in nothing but higher prices, a degraded environment, run away climate change, and the steady enrichment of the already wealthy at the expense of everyone else?
I do care however, when the government tells me that prices are going up but I mustn’t expect my salary to keep step and in fact, they imply that it’s both greedy and irresponsible of me to expect it. Of course, those enforcing this punishment upon me do not themselves feel anywhere near the pain of it – if they did, you can rest assured they wouldn’t be doing it. But no, it’s easy to “put interest rates up” or “cut back public spending” because these are all done at arm’s length and from the comfort of those green leather benches. Let’s see the politicians do it when it’s a case of taking food directly from a child’s hand, or physically switching off the heating in an elderly person’s home because they can’t afford to pay the bill. But whilst the news presenters allow the politicians and their policy-supporting “experts” to continue to phrase everything in these abstract, arms-length terms, the true human impact goes unreported and unobserved until something catastrophic must inevitably occur, at which point, those politicians, news presenters and experts will simply look for ways to blame those who suffered or else ascribe responsibility to some other abstract concept, rather than face their own culpability and the punishment that should (but in reality never does) follow.
Thanks
Andrew Bailey’s yesterday’s interview tells it all really. His call to businesses to “resist raising prices” is nothing short of admission about the true causes of inflation and that BoE interest rates decisions will not have intended effect.
Unless the intention is to fuel inflation, of course.
I live in France and everyone knows that the hike in prices has little to do with higher fuel costs, the war in Ukraine or bad weather. The governments of Europe could have and should have stepped in and made companies justify with cold hard facts every price rise but that of course would have meant they actually govern in the interests of the majority of people, which they don’t.
The elephant in the room for the UK is the insane price of property, no rent controls for either residential or commercial property. By crushing the price and rents of property will instantly release stress for the majority of the population. It will of course destroy the BTL scum, hurt the banks and mortgage companies but will do lasting good for the country. Every country in Europe has rent controls, no country in Europe gives tax breaks for BTL or second homes – now wait for the howls of protest from the parasitic rentier scum.
If you had a three tier property market with 1) state owned rent free 2) hybrid public private owned with rent controls 3) and the rest free floating then buy to let landlords could fill supply mostly in 3 rather than being the social housing landlord of this country. It’s the best compromise I can think of and Austria and the Netherlands are much closer to this model.
Hello, I have received an email today from Graham Smith of Republic who is asking if any economist can help with Republic’s research into the economic impact of major royal events. As I read your blog regularly (and have your books) I thought of you, although I do realize you are very busy, but felt I should at least let you know so you can make the decision.
Now I know why he tried to call me yesterday….