Andrew Bailey, Governor of the Bank of England, addressed the British Chamber of Commerce yesterday. His main message was:
At the May meeting, the [Bank of England Monetary Policy Committee] MPC judged that a further 0.25 increase in Bank Rate, to 4.5%, was appropriate. The MPC is continuing to address the risk of more persistent strength in domestic price and wage setting, as represented by the upward skew in the projected distribution for CPI inflation, and the Committee will continue to monitor closely the indicators of persistence in inflationary pressures.
What did he mean? Three things. One was that businesses still impacted by rising costs are putting up prices still. We know this is true: inflation is coming down more slowly than expected.
Second, employees who have seen their real incomes fall considerably are having the temerity to try to recover their financial well-being by continuing to ask for pay rises when the Bank of England has told them not to do so, saying instead that they should accept their fate , a message he repeated, albeit subtly, for him in the speech.
And third, the Bank takes a dim view of this failure of the world to comply with its wishes.
So, next he said:
I can assure you that the MPC will adjust Bank Rate as necessary to return inflation to target sustainably in the medium term, in line with its remit. If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required.
In other words, much to his delight Andrew Bailey has found reason to think interest rates might need to go up again, even when we already know that they are not stopping inflation and are only causing untold harm to people in this country.
So, what Bailey really said, with his usual callous indifference (despite suggestions that he had been to a Citizen's Advice Centre to learn just what that harm was) was that the beatings will continue until people learn to live with the Bank of England instruction that they be worse off in perpetuity as a result of this inflation when there is no reason at all why that need be the case.
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Meanwhile, Sunak claims that Brexit is a success, because for example it has enabled the VAT on sanitary products to be cut from 5% to zero, and allowed changes to beer duty. Talk about small beer, but anyway:
On VAT, yes, the UK could only cut the rate on sanitary products in January 2021 because we had left the EU, but the EU changed its law in April 2022 to permit that anyway. See article 1(5) and the annex to Directive 2022/542. So any advantage was temporary at best. And then how much of that VAT cut was passed on to consumers? Are sanitary products today actually 5% cheaper than they would be otherwise? I think not. Most of the benefit has gone to the companies in the supply chain, mainly I suspect the manufacturers and retailers.
And on beer duty, the UK could not have reformed it precisely the way we have – specifically the draft relief, and the new small producer scheme – and we needed the Windsor Framework to be able to extend the changes to Northern Ireland, but a number of the reforms, for example changing the rate structure, would have been permitted within existing EU rules on excise duties. It remains to be seen if beer in pubs actually gets any cheaper in August 2023, or if pubs and breweries trouser the difference. Sunak may not have noticed – as I understand it, he is teetotal, and I wonder when he last bought a round – but certainly, beer in pubs today is no cheaper than it was one or three or seven years ago.
I agree: the substance of the changes could have been made anyway
Many pubs are struggling to survive. I can’t see the price of beer falling.
Wages in certain sectors seem to be going up. In my department in the public sector, people are leaving to take up better paid equivalents jobs in the private sector. The private sector seems to understand that you need good people to get things done and sustain contracts.
Those necessities are no longer at work in the public sector from bin collection to the NHS. My union Unison who has rejected the current pay offer and is balloting for strikes, telling us our wages are 25% down from 2010 and it does feel like it.
So to me, not only is Bailey refuting valid recruitment practice in the private sector, he’s also not even taking austerity into account. I bet he has to problem however with pay remuneration in the financial sector – his hinterland.
Once again, it shows us that those with the neo-lib, authoritarian mindset are the real purveyors of ‘cancel culture’. They pay no heed to history or facts.
Damn them all.
Might the Bank of England be, in practice but certainly not in theory, a subsidiary of the American Federal Reserve?
“So, what Bailey really said, with his usual callous indifference was that the beatings will continue”.
And they will have absolutely no impact on Bailey or his family, “we are all in this together” has not & never will apply to Bailey and his ilk. Policy formation and implementation with zero consequences for the perpetrators.
Since the BoE decision affects the whole nation, perhaps there should be citizen oversight of BoE decisions.
After all, to recycle a phrase much loved by Fart-rage “they are unelected bureaucrats” – that being the case – perhaps it is time for more citizen involvement.
‘Since the BoE decision affects the whole nation, perhaps there should be citizen oversight of BoE decisions.’
Or our democratically elected representatives?
I think they’re happy to leave of that complicated money stuff to the ‘experts’
And so it will continue.
The FT headline on this is :
“Bank of England governor admits UK economy suffering from wage-price spiral”
What wage prce spiral?
ADMITS???? He has been claiming it all along, with as little evidence then as there is now.
Precisely
We need a “bullshit economic language translator” that can translate this deliberately exclusive techno-babble nonsense into something a lay person can understand:
Let’s see…
“The MPC is continuing to address the risk of more persistent strength in domestic price and wage setting, as represented by the upward skew in the projected distribution for CPI inflation”
translates to:
“because we’re blaming people who want their wages to keep pace with inflation as the reason why inflation is occurring, we’re going to punish them by making money they’ve borrowed more expensive, thereby reducing the amount of money they have to buy anything in the hope that this will decrease demand for everything and cause prices/inflation to fall”
and:
“the MPC will adjust Bank Rate as necessary to return inflation to target sustainably in the medium term, in line with its remit. If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required”
translates to:
“and if the buggers are successful in getting even a penny more in wages, then we’ll screw them even further until their eyes bleed because one thing we can never do is admit that our policy is wrong/doesn’t work/is economically illiterate/is downright evil”
There, that’s better.
An old sarcastic motivation poster once read, “The beatings will continue until morale improves”.
LInk to it: https://quotefancy.com/quote/910192/Stephen-Hawking-The-beatings-will-continue-until-morale-improves
https://www.msn.com/en-gb/money/other/andrew-bailey-admits-britain-is-suffering-a-wage-price-spiral/ar-AA1bjI2Z
And now he’s talking up, seemingly out of nowhere, the spectre of a wage-price spiral despite even the neoliberal IMF basically admitting that particular theoretical phenomenon has hardly ever occurred throughout history.
The BoE is heading quickly towards pantomime villain status when it uses unjustifiable reasoning to pile misery on those who have no direct means to rid these appointees from their lives. An utterly repugnant state of affairs.
Clearly, the BoE view is that spiralling wages are inflationary but soaring executive remuneration does not. I guess BoE execs receive remuneration not wages.
My small sample of concerned operational researchers seemed to have the idea that interest rates would have to ‘return to normal ‘ after being too low for two long.
A bit strange if BoE wants to keep them high for longer – despite IMF expecting them to come down again soon.
Given ‘I wouldn’t start from here’ – the low rates are one reason house prices have mushroomed beyond the reach of many young people even at lower rates than now.
And as Larry Elliot points out – those low rates didn’t stimulate housing production or gdp .
Is the best assumption to think that the ‘natural rate’ will converge to around 1-2%?
But this deliberately engineered catastrophic private debt crisis for at least 30% of the population, surely will have to be resolved? Incomes / wages have to rise soon, so people can afford basic heating, shelter and food again – which will also begin to rescue the NHS , retaining and recruiting staff – and the same for schools, rail, courts etc.
And Richard’s programme to use tax and subsidy reform to redistribute between rich and poor and then harness funds to investment in the Green New deal, public services , house building etc becomes more and more urgent.