The FT features an interview with Huw Pill, the chief economist at the Bank of England, today. In it, he says:
The decline in headline inflation is largely exogenously driven. It's basically driven by the fact that we've seen this decline in energy prices and slowing food price inflation, and we've seen international goods prices basically stabilise. Those are the three main external sources that drove inflation up, and they have all now gone in the other direction and are bringing inflation down.
In other words, the fall in inflation that we have seen has nothing whatsoever to do with the increase in interest rates in the UK. It is all down to factors totally beyond the control of the Bank.
A wise person would have concluded as a result that the Bank had made a serious error when raising rates and that it should now be saying that they needed to fall. But Huw Pill is not a wise man. Far from it, in fact. What he said to justify continued high interest rates (which is his obvious goal) was:
This is why I emphasise the supply side of the economy. To the extent that you think that slowing activity, spending and employment growth are associated with a deterioration in the supply performance of the economy — and not just a weakening in demand — you are not opening up that slack, that easing of resource pressures, which will bring domestically generated inflation down.
Very politely, that is gibberish. I don't think the FT understood what he is saying. Certainly, their analysis article does not shed much light on this claim.
As I read it, I think he means that because the UK economy has structural weaknesses in it (most especially a shortage of skills) then even if demand falls there might still be inflationary pressure because the economy is unable to meet even normal low levels of demand for goods and services now without inflation arising. That, I think he is saying, means that inflationary pressure still exists and so that weakness in the structure of our economy must be punished through penal interest rates, causing untold misery and havoc.
It takes a quite exceptionally tortured mind that is desperately seeking a reason to justify already wrong action to come up with such logic. In effect, he is saying that because the beatings have had no effect as yet, he must find another reason to continue them because he is enjoying imposing them so much, even if he is well aware that further beatings cannot in any way address the actual weaknesses in the economy that he claims exist.
As I have already noted this morning, all that this indicates a poverty of thinking that is simply staggering. Pill is utterly dedicated to the theory of monetary policy that demands that interest rates be high. He is so dedicated to that idea that he is indifferent to reason and is clearly beyond worrying about the consequences of his thinking.
And you wonder why I am worried? I am because, not least, Rachel Reeves says that she believes in these people.
How much more must we suffer before sense is seen?
Footnote: The more I think about what Pill said the more bizarre it seems to be. His logic seems to be that suppressing the economy and its capacity to change so that inflation might be beaten is much more important than letting the economy actually fulfil its primary function with society of ensuring that need (I stress, need, not want) is met. To suggest that he has lost all sense of priorities is to be kind to him.
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I must say, I eagerly clicked on this article hoping to understand the BoE’s thinking (however much I may or may not disagree with it
Half way through I started to flag. I was beaten down by jargon, muddled thinking… all of which suggests that he doesn’t really understand himself. (If you can’t explain in simple language then you don’t understand it yourself). I thought it was just me but it seems I am in illustrious company (you plus FT journos)
My summary of the thinking is…..
Inflation was driven by external factors that are now dropping out of the equation (whatever interest rates are); there are “supply side” problems (that remain whatever interest rates are). But we will keep rates high in any case because er…. I don’t know.
I hope this summary will allow blog readers to save themselves 20 mins (and an FT subscription).
We are in agreement
Quick summary, Pill is way out of his depth
I do not subscribe to the FT or any newspaper, but this sounds so bad I almost feel moved to subscribe. Clearly this appears a watershed moment; the BoE is at last revealing the state of its profound intellectual confusion.
Without wishing to bathe in schadenfreude, I think this may well be the moment to focus on exploiting this clear demonstration of the blunt muddle at the heart of BoE thinking that has had such severe adverse consequences for so many people. Richard, you are best placed to do this; after all, you are now clearly a favoured ‘go to’ media source on economics.
Otherwise a mere interview by the FT of Huw Pill will simply pass most of British opinion by; especially with so much else headline news vying for attention.
Who would notice?
John, have a glance at my response to Clive’s comment. I don’t think there is intellectual confusion or a blunt muddle at the heart of BoE thinking. The Bank has been given its orders and they are following them. The end-state: the strengthening of the financial elite with the eventual weakening of the remainder, both financially and democratically. Unstated of course.
I would add that virtually every “below the line” comment echoed Richard’s and my confusion.
In defence of many BoE staff, their blog https://bankunderground.co.uk/ has some really interesting stuff. But (and you couldn’t make this up) Huw Pill freely admits they ignored their own research!!
Which is staggerong, buit apparently true
It also seems that they ignore their own agents in the field
Pill knows exactly why he and others want to keep interest rates high. He is a high level functionary that must engage in actions that benefit his lords and masters, even if those further down the food chain end up suffering. These lords and masters heavily influence (control?) the government as well and probably the opposition. A very ornate spider’s web of power within the nation. A blinding glimpse of the obvious perhaps, but we are in a very dangerous situation right now where future freedoms risk being severely curtailed if this continues.
Pill’s has to obfuscate with his communications, as do others. Hence the incomprehensible nature of his interview in the FT article. He knows that only a minority of people will see through what he has said and that he will be protected. Probably most of the those that see through him benefit from the way the system is structured, therefore there is little incentive to call him out.
Unfortunately, the majority of people in the UK will simply park his comments in the too difficult box and move on. If he was to speak plainly and logically, the cat would be out of the bag to the detriment of the financial elite and to Huw Pill. He’s not going to shoot himself in the foot.
An old metaphoric Army phrase springs to mind in relation to high interest rates. “Punishment beatings will continue until morale improves”. The difference though is that situations often arose due to poor leadership or other issues of competence, which were generally short lived. Those manipulating interest rates are doing so as part of policy with a clear unpublished end-state in mind.
I think he’s saying “The beatings will stop once morale improves”
I think he is saying that supply pressure is easing so the Bank of England needs to act to squash demand, in case people are tempted to buy more things that want or need (potentially driving up prices). Instead they must pay more interest on their borrowings.
If they were honestly trying to manage the demand side in response to supply changes, they should have to continued with low interest rates to loosen the demand side while supply side pressures (fuel, food, supply chain dislocation) were dominating. Because if fuel or food prices are rising quickly people will buy less anyway.
They have to give the impression that they are doing something else what is their point.
I think Government and critics are looking at this from the wrong perspective. The supply side problems originally caused by the pandemic or Ukraine war disrupted a ‘market’ system based on Just-In-Time principles. The impact on business and consumer was obvious.
Britain was particularly hard hit because the Government has been running the country on an austerity programme which assumed Government was so clever it could run key services on something very like a Just-In-Time basis; and not invest in infrastructure or capital goods. What do I mean? I mean government has extracted redundancy from the supply side of its services equation. Everything is supposed to run, permanently, ‘flat-out’ without serious adverse effects; in all circumstances; and that simply isn’t true, and has been demonstrated to be catastrophic in its effect on the whole population, and the economy.
I mean that the NHS was allowed to run at near 100% capacity; without sufficient redundancy built into the provision of beds, equipment or human resources.
I mean the railway network is running largely on a post-Beeching conduit of rails that is at or near capacity every day, with insufficient redundancy built in; even for growth in a green transition, or against adverse events – even weather events.
I mean an energy supply system that assumed an international system of supply with 100% guaranteed delivery could be assumed; even in a world subject to natural disaster, politics , terror, or war. A system without redundancy, and offering 12 day gas storage against failure of supply.
These examples are merely illustrative of fundamental Government failure, beyond manifesto level; a failure of government in its most basic duty to protect the security of the people. This is negligence on an unforgivable scale of executive failure.
As far as I can see Hunt’s Budget suggests that even with a colossal tax burden, almost zero growth achievable and drastic cuts to public expenditure; the national debt around 2028-9, will be north of £3Trn. The problem is not – I repeat not – the debt. The real question, the real problem is – what would he have to show for eighteen years of Conservative economic policy, and an unpreceneted increase of £2Trn of debt under their watch? And the answer is – nothing; because we will be in precisely the same nightmare at the end of it. Services overwhelmed by lack of resources; no redundancy built in; and no way out. Just repetition of the same conservative blunders, over, and over, and over, and over again.
It has to stop. Not next yeart. Now.
I suspect he’s saying something which he knows sounds vaguely like economics in the hope anyone who doesn’t get that it’s total nonsense will assume it’s simply too complex for them to be able to understand. I assume too that includes the staff at the FT. I’m seeing this approach to criticism on Twitter now, offered as a defence from self-proclaimed economists when I point out flaws in their thinking (and If I can manage to do that, those are BIG flaws); in response they try to tell me it’s beyond my intellectual capacity to understand their thinking. Well! 🙂
Might Mr Pill’s comments for suitable for the “Say it in a pub test”?
Would someone saying this in a pub, without the status, panoply and showbiz of the Bank of England be mocked unmercifully?
Might Mr Pill be using the medium of the B o E to bolster a twerp message?
“clearly beyond worrying about the consequences of his thinking.”
Given the text before this sentence, do you not think you are being somewhat generous ascribing “thinking” to Pill?
What seems to be happening is more akin to an unconscious muscle spasm – “inflation high, muscle twitch, interest rates up”.
🙂
I’ve been listening to Mr Pill’s attempts to justify BoE behaviour at his regular briefings that are available to the public – the “Bank of England Citizens’ Forum” gives access to regular Virtual Citizens’ Panel sessions on zoom.
People from Positive Money have started attending & asking questions, I notice.
I’m rather relieved to see that it’s not just me that thinks he’s talking complete nonsense.
I’ll try to work out a way to phrase a question at the next one to see if I can elicit any further information. Notice I didn’t say “explanation”…
I am registeed for these events and wonder whether I should turn up
Do you think it would be worth it?
Yes, I do – if you have the time. I can’t think of a downside; save you don’t catch his eye, or you feel the time has been spent for nothing.
Noted
Me too – my experience has been that they confirm our worst fears.
However it might be worth lots of us signing up and submitting questions.
As has been mentioned, the Bank’s Agents’ reports are worth a look. They tend to describe a world we’d recognise – which Pill and Co seem to ignore.
https://www.bankofengland.co.uk/agents-summary/2023/2023-q3
Probably oversimplistic:
External factors cause an increase in prices, leading to inflation.
Inflation causes pain
Raising interest rates reduces the pain for those with savings
Raising interest rates increases the pain for those without savings
Not especially
EXCECPT that the pain is not a zero sum game. The pain is much greater than the gain.
Indeed so
Number without savings affected x amount of pain
both far greater
It’s bonkers isn’t it – inflation comes down for reasons that they admit are nothing to do with the increase in interest rates, and they point to that as evidence that the increase in interest rates is “working” – i.e. that it is causing inflation to come down – and so must continue, despite the misery it is causing!
Post-COVID, the BoE acknowledges this is ‘cost-push’ inflation largely caused by the energy and food price spike following Russia’s invasion of Ukraine, rather than ‘demand-pull’ inflation, and yet insists that raising interest rates to reduce demand is the answer.
Where is the public investment to stabilise energy and food prices? There’s literally nothing stopping us from weaning ourselves off expensive, volatile fossil fuels imported from Russia and other petrostates in favour of domestically produced, reliable green energy (wind, solar, battery storage to address variability etc). Apart from blind ideology and straightforward idiocy.
Charles wrote “Post-COVID, the BoE acknowledges this is ‘cost-push’ inflation largely caused by the energy and food price spike following Russia’s invasion of Ukraine,…”. Let’s not forget that Brexit was also a significant contributory factor in pushing up costs. The government won’t mention it because they can’t admit the ovious truth that so many of our economic and supply troubles result from the ideologies of the Tory right-wing.
Could it be as simple as the the BoE wishing to drain as much money from debtors as possible to both line the coffers of the banks and make recovery more difficult – especially since the incoming chancellor appears to be disinclined to interfere with their policies? Thereby causing yet another headache for a new Labour administration. Of course this would imply that the BoE’s “independence” is simply smoke and mirrors and that they are simply a tool of the establishment or that they have “gone rogue”.
All are possible
To be charitable and play Devil’s Advocate, perhaps the increase in base rate was a reflection of the structural supply weaknesses of the economy. A post-industrial economy, such as the UK, has a very low sensitivity to changes in the prices of commodities and other imported inputs as well as imports of finished goods for consumer markets. Raising base rate will drive a higher demand by investors and speculators for £ which in turn creates an appreciation of the exchange rate thus making imports relatively cheaper than before. In turn, this helps to control the rate of growth of the CPI basket. However, for the BoE to admit this would require them to explicitly acknowledge the toxicity of their 40+ year project of financial capitalism.
I really don’t see this as a significant factor in their thinking.
Is it not the case that interest rates are being kept high to support the £?
Do you really think that works?
What is the evidence?
It’s not really a for me to decide if it works or not (I really don’t know).
It appears to me that the BOE seems to think that it works.
I don’t think that is core to their thinking, but probably plays a role.
You will moderate this and rightly so ! He is an economic imbecile and as you say way out of his depth. Exposing him is straightforward, however the issue is who is interested and what can be done ? Grrrr
No moderation required
A bit late onto this – but is this gibberish by Pill something to do with trying to shrink the demand for labour by penalising businesses to the point of inducing recession, thereby achieving a better balance of demand to the reduced supply in the labour market caused by Brexit, long Covid and a huge NHS backlog? The recent news about wages ‘at last’ outstripping inflation? The collateral damage is household disposable income. A way of carpet bombing the economy to try to hit a specific, limited target.