The Bank of England talks interest rates today, and no one thinks that they will cut them.
That provides the clearest indication that they still want:
- a recession.
- to crush the wages of working people.
- to impose austerity on the government by keeping its supposed costs of borrowing high.
- to cut government investment opportunities by wholly unnecessarily selling government bonds bought during the QE era just to keep interest rates high and make large losses in the process, which then makes Labour's plan to raise money for a Green New Deal harder to deliver.
It would seem that economic sadism is alive and well, and living in Threadneedle Street.
There is not the slightest shred of evidence that can support what the Bank will do today. Pursuing this goal, they reveal their own agenda and their own lack of understanding of economics, including how wage movements lag those in prices. But never doubt that if a person is given power and a single tool to exercise it they will use that tool if they can, which is exactly what the Bank is doing.
There is one answer to this: Bank of England independence has to be ended for the sake of the UK as a whole, or be so radically reformed that this disaster can never be repeated.
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I guess New Labour were desperate for credibility and granted BoE authority on interest rates was an easy win. You’re right anyone given power is desperate to use it (look at VAR in football). They should recommend to the Chancellor who has the final decision.
Thank you.
An idea from the brains behind Brown, the FT’s Ed Balls and his brother Andrew, a veteran of PIMCO. Plus retention of and building on Thatcherite City deregulation and installing placeman Howard Davies at the FSA.
I have spoken to former senior Bank of England officials who were threatened with dismissal for raising the alarm* in the late 1990s and early noughties and would like an enquiry into 2008 and the opportunity to say what happened. They want the 30 year or more lock on official documents scrapped, so that these warnings are brought to light when people responsible are still alive. *FSA officials were, too, by New Labour.
Danny Blanchflower did speak out though
Don’t forget also that they held base rates at 0.5% for the best part of a decade. That rate was supposed to be a short term emergency measure to stimulate spending after the 2008 banking crisis. It didn’t work. And keeping it in place long term which gave savers no interest to speak of at all and fuelled property price inflation.
It did work
Banking was saved
More than that, the country only survived austerity because of it
Is it just that you did not get what yu think you ae entitled to that upsets you?
Can you tell me who endowedyou with that entitlment, and why?
As the great Warren Mosler once said “why give money to people who already have money”
Just for clarity, offering the name “Huh” in a comment stumbled into a Blog you know nothing about is “a good look”?
That was clearly approved in error
Deleted now
Poverty being engineered before our eyes for the sake of the City’s profits!
Sometimes one needs art to provide an explanation for the antics of institutions. (apologies to Mr Williams for the alterations to “Party like a Russian).
Last sentence is perhaps the most appropriate…. because they can, because the circles they (the guvnors!) move in mean that they do what they do (join a golf club as a socialist, give it a few years – I guarantee you will be a tory). There is not point in trying to change their minds, they need to be removed or turned into order takers – from the chancellor.
It takes a certain kind of men with a certain reputation
To alleviate the cash from a whole entire nation
Take my loose change and build my own space station
(Just because we can, man)
I joined a golf club, even captained it, and left in disgust three years alter at the rampant racism and misogyny that was becoming an epidemic there (2000s, left in 2010).
I suffered sitting near two golf club members yesterday and, as usual, listened in. Their contempt for state services and people ‘not like us’ was extraordinary.
I would like to think they are exceptional.
Except I hear the same type of thing too often.
Never has the Groucho Marx maxim about not joining any club that would have him been more true. I recall someone explaining how the hierarchy of committees and the pecking order of parking places in golf clubs said so much about class and snobbery in British society. It always has put me off.
And yes there are some that are not like that, and members that do not fit the stereotype.
I had always used “Golf – a good walk ruined” but I heard a great one the other day… particularly good when deployed to Golf Club snobs….
As a Guards Officer once said “Golf – it’s polo for sergeants”
I was a member of a golf club for 30 years. It’s an enjoyable way to spend a sunny afternoon particularly if you are over-looking the sea. However, the members are almost exclusively old gammon or young white male ex-footballers who drive white vans. I would say they are 90% misogynist, racist, homophobes who’ve never a read a book since Primary school. They do a great service to society as they keep these imbeciles away from the rest of us. Under no circumstances engage with them.
Today the Bank of England is independent.
Last year they weren’t really independent as all the Board members are appointed by the Chancellor/Treasury, I forget which.
I can’t keep up.
But let’s suppose that you got your way and the BoE lost its operational independence today. What would be the consequences? The Tories would cut rates enough to make all mortgage payers better off and think how marvellous they were in time for a November election, and they wouldn’t face electoral wipe-out. Is that what the UK’s leading political economy blogger wants?
I don’t.
Tell me why I would not want that when that is exactly what the country and thsoe people need?
You’d rather play politics?
Shame on you.
The current set up means that playing politics is kept out of it.
That’s what I want.
No you don’t
Your comment was blatantly political
Don’t call again, not least because I also notice you are likely to also be Michael Lanadu.
Politics is being played by the Bank of England in alliance with parties that act in the interests of the rich like the Conservative Party and now the Labour Party under Starmer. You Paul Joseph Goebbe simply can’t work that out! You could of course start with the fact the UK state can create money from thin air but it also has a responsibility to regulate the combined amount it and the private banks also create from thin air especially with regard to triggering abnormal inflation or deflation. Easy to go on to see that raising bank rate abnormally triggers deflation!
Looking at the prospect of local authorities having to sell off more assets to cover shortfalls in support grants, I’d say that there is a 5th bullet point above that needs to be added which is of course the BoE helping yet another transfer of public assets into private ownership as councils essentially eat themselves up in order to survive.
When we consider the truths of your recent opus on government debt, what else can the policy to starve councils of funds be? It’s a policy of deliberate destruction in order to create opportunities for even more exploitation by wealth.
It is getting to the point where – and consider Reeves cosying up to City the other day – our society faces the prospect of it becoming utterly dependent on fate and the capitalist market.
Add that to an increasingly infantilised and divided citizenship and its a recipe for disaster.
We are in the middle of the biggest daylight robbery of them all. And then you zoom out and see what is happening elsewhere as in Gaza.
I don’t doubt the fecundity of your writing Richard.
But I am simply running out of things to say.
I don’t believe you
Those words were useful
Thanks
Whatever the reasons behind defunding councils, the upshot will be a fire-sale of assets, largely land. This will continue the biggest privatisation of all, public and common land being enclosed by private interests.
Thank you, Richard.
Yesterday afternoon / evening, I attended a meeting for representatives of and legal advisers to foreign banks operating in the City. “We can’t believe how Labour are falling over themselves to please the City.” Labour wants the City, “a force for good and whose back Labour has”, to fund net zero, pensions and public services, and sees no role for unions and civil society, aka “student t shirt politics”. “Labour wants the City involved at every level of government and in all programmes.”
“No opposition for opposition’s sake.” It was telling that Labour criticised Johnson and Truss explicitly, but implied it was fine with Cameron, May and Sunak and will retain much of what the Tories have done. It also plans to enhance the independence of the likes of the Bank of England and OBR “to protect them and the country from the likes of Truss”.
“The country needs stability.” It was implied that any degree of reversing Brexit is more trouble and costly than it’s worth.
One thing that does disappoint the City: “Labour is not interested in (single) market access and has not engaged the City (even though the Brexit agreement is up for review next year). Labour is interested in some flexibility for City employees, but not free movement, and keeping clearing in London.”
Later this month, Streeting* and the shadow development secretary will meet us to discuss how the City can deliver health, social care and development. *Starmer’s closest ally and favoured successor is Reeves, but Streeting is in a hurry and has the Blair and Mandelson machine in his corner.
We are aware that Barclays, HSBC, Citi, JP Morgan and Goldman Sachs are advising Labour and the link with private equity. The investment firms are playing a bigger role than traditional banks.
Thank you, and deeply troubling
Thank you, Richard.
It feels as if a new grass roots movement is needed on the left. That will take time, but people and planet are running out of time, so I don’t know what the solutions are.
The wannabes in the Labour In The City Network are, with rare exceptions, Blairites and don’t see the need for surgery and urgency. They are interchangeable with Bright Blue.
The make-up of the committee that was advising Labour was the stuff of nightmares, all died in the wool City folk. Labour seems to have rolled over and given them everything they could have wanted. The Bolly would have been flowing in their clubs as they celebrated afterwards.
It needed a group that included a majority of those who use and need financial services rather than just those who profit from them. That would include business people and especially SME, citizens groups, local government and regional representatives.
Having said that, the same sort of thing applies to the Bank of England. I can see a case for an organisation that is at least arms length from the politicians. However, it needs to take direction from an MPC and ‘Court’ (the Bank’s governing body – https://www.bankofengland.co.uk/about/people/court-of-directors)
that has much broader representation. It decisions need to be taking into account a much wider range of criteria and not just be based on the output of the most orthodox of economists and their flawed models.
For starters they should be employing a few of those who predicted the financial crash – Steve Keen would liven things up! And bring back Danny Blanchflower. It’s a cosy club of group thinkers right now.
Link to Labour’s grovelling to the City
https://labour.org.uk/wp-content/uploads/2024/01/Financing-Growth.pdf?source=email-labour-list&link_id=6&can_id=c89bad6efd33bde7886ba7cfc6fdc294&email_referrer=email_2188955&email_subject=bankers-can-keep-their-bonuses
Agreed
The BoE has failed over the last decade; however, it is not clear to me what the solution is.
The key failures are
(1) To believe that interest rate policy (including QE) could solve our economic problems. Neither zero rates and QE to boost things nor high rates to control inflation have worked – it was fiscal policy that did the heavy lifting during COVID and “mathematics” that has reduced inflation.
(2) Failure to see fiscal policy as a key part of economic management and to coordinate fiscal/monetary policy. This became a key tenet of thinking in the 1980s to justify small government and tax cuts…. and seems to have taken root (until COVID).
So, first, we need broad recognition of the limits of interest rate policy. If the last decade has not made this blindingly obvious then I don’t know what will.
Second, we need a government that sees itself as part of the solution, not the problem. There is nothing the BoE can really contribute here – politicians need to step up.
Third, monetary policy needs to be conducted in tandem with fiscal policy. This could be having interest rate policy run by HMT. This was the case prior to 1993 until the “Ken and Eddie show” saw HMT and BoE discuss interest rates before “full operational independence” was adopted in 1997 but it does run the risk of manipulation by an unscrupulous Chancellor. Also, I think such a move would be difficult politically.
My preference is to broaden the BoE MPC. It should include HMT civil servants and Chief Secretary to the Treasury (Chancellor’s No. 2) – this would aid coordination. Also, Academics, Trade Unionists, Business owners, representatives of civil society etc.. This way the narrow thinking of bankers is challenged.
A solution? Possibly not. An improvement? Yes.
Definitely an improvment
And change the mandate to require foscal considerations like ‘subject to full employment and the affordability of household credit’?
A change of mandate; a recognition that there are more “tools” than just interest rates; transparency in policy making. All of these would be good…. and perhaps a newly formed broader MPC could write it?
Maybe…
Thank you and well said, Clive and Richard.
I wrote my masters dissertation on central bank independence in 1995, found the evidence in favour weak, opposed it then and now.
Richard’s friend Larry Elliott helped me. So did Nigel Lawson (who slated my apparently left wing lecturers), Will Hutton, Peter Hain, Roger Berry, James Forder (Liberal academic at Oxford) and Adam Posen (later on the MPC) helped me.
When MPCs were set up in the run-up to monetary union, economists associated with the labour movement, e.g. Wim Duisenberg, were prominent. However, that has not been the case for many years. When working on regulatory and trade policy from 2007 – 16, including in Brussels, I was mystified why the left, trade unionists etc. showed little or no interest in central banking and regulatory policy. When insider sympathisers tipped off something was happening and needed their attention, there was little engagement.
Ignorance is, I fear, the right answer, and fearing knowing, in equal combination.
Why do almost no trade unions or supposed left wing think tanks engage with what I do here now? Three reasons:
1) It’s hard
2) They aren’t funded to do hard stuff
3) They don’t want to actually solve problems because they might be out of jobs if they did.
Excuse my cynicism.
If banking is poorly understood (eg how they create money) then central banking is even more so. I had the BofE as a consulting client some years ago and it was an education, getting to see other central banks and that elite club.
They argue that their mandate should be as narrow as possible, sticking to inflation and the money supply. In which case they have no need of their grand buildings and large staff. We need a department focused on the wider economy with a broad range of skills to match. The BofE and Treasury need to be put back in their boxes.
I thought s19 of the Bank of England Act 1998 meant that the Bank was not truly independent as it could be overruled by the Government. Apologies if I have misunderstood.
That is the case
But it is not used
Thank you.
The BOE has operational independence, which can be rescinded. The legal provisions are not complicated to do so.
The Bank of England allowed the over lending which resulted in the banks having to be bailed out.
Then they supported austerity which failed to deliver on its promises. ( Just like monetarism but I don’t know what line the B of E took on that )
Then we had the ruinously high interest rates which did not address the problem as it was largely imported.
Then we had quantitative tightening which was a disaster.
All in the last 25 years.
Why should I think the Bank of England has to be independent of politicians because they make better decisions?
It seems to be a way of allowing the City of London to exercise extra power and influence.
There is considerable support for Richard’s position and a prioritising of fiscal policy from this debunking of the risible 2% inflation target.
https://www.theguardian.com/commentisfree/2024/feb/01/the-damning-truth-about-the-uks-2-inflation-target-its-completely-made-up
The problem with an alternative Party/movement is that those outside Labour are largely single issue activists (Greens, some socialists, some communists, animal rights etc) who find it difficult to find time or resources to commit to the building of an opposition to the neoliberalism of the three main parties (and arguably, a wing of the SNP). Many lack the knowledge or ability, or in some cases, charisma. Tony Benn, Tony Blair, Ken Clarke, Michael Heseltine…possessors of it all, only one a socialist though.
In my patch of the world, a few lefties are rightly doing Gaza stalls and demos (me at times). The rest have either crawled under a stone inside Labour or given up in disgust (me, largely). Trying to get any cohesion is like opening a box of crazed frogs and trying to get them all hopping at once in the same direction. The few ‘leaders’ seem to be versions of the 1970s Militant, Ted Grant, or shape-shifting weasels like Galloway.
Thank you, Richard, for the reply about the left’s engagement or lack thereof.
I feared as much, agree with you, have heard similarly and don’t know where we go from here.
Me neither
Shouldnt the BoE (and/or MPC and/or OBR) at least be explaining the implication of interest rate changes and why increases (and the resulting recession ) are necessary , even though this recent inflation was externally generated (Ukraine / oil ,pandemic etc.).
If it was deemed too politically difficult to reverse ‘independence’ maybe the BoE could be given a more sensible remit – not only interest rate, but unemployment, growth etc – or at least to strongly argue and recommend what should be done – and present that to govt.
The unspoken agenda for BoE interest rates does seem to be tracking US interest rates with a background worry about exchange rates?
Labour shadow business sec this morning R4 – mentioned ‘fiscal rules’ about a dozen times – contradicting himself, saying that the £28bn green investment commitment was only if ‘if fiscal rules allow’ – ‘we need to take account of the state of the economy ‘ etc
In other words there is nothing much we can do until the economy (‘growth’) allows us to. Of course, he was not challenged by the interviewer to ask ‘wouldnt green investment payback- and grow the economy and maybe still within the fiscal rules?’
Labour painting themselves into an ever tighter corner dday by day.
Article in Guardian
2% inflation target completely made up.
https://www.theguardian.co
m/commentisfree/2024/feb/01/the-damning-truth-about-the-uks-2-inflation-target-its-completely-made-up?
Why do we seem to be concerned only with the economy inside the UK.
Novembers 3-month figures (ONS) showed total trade inequality of -9.3 £Bn, goods inequality of -47.8 £Bn and services inequality of +38.5 £Bn. That is not sustainable!
So we are stuffed! Everyone is buying stuff from abroad. No wonder it is necessary to keep wages down! It is evident that it is only the nasty City that is keeping the Islands afloat. Could it be that the BoE is attempting to boost the only worthwhile sector, while restraining the other?
The country has sold off its silver, practically all the utilities are owned abroad.
There does not seem to be anyone with the power to reverse the situation.