As the Guardian reports this morning:
[Retail] industry figures show prices rose at an annual rate of 1.3% in March, down from a rate of 2.5% in February – the slowest pace since December 2021, according to the latest monitor from the British Retail Consortium (BRC) trade body and the market research firm NielsenIQ.
Non-food inflation dived to just 0.2% from 1.3% in the previous month, while food inflation fell to 3.7% from 5%.
I suspect that most people will see this as good news. Prices are still rising, as the government and most economists would desire, but at a much slower rate now. I have three thoughts.
Firstly, the risk of deflation now looks to be real. If prices of non-food items continue to tumble, there are real signs of a dramatic shortage of demand within the economy that might make this possible. There are always problems when this happens because deflation easily tips over into ever-deepening recession. Those problems would be best avoided. Easing of monetary policy, to make sure that prices only stabilise, rather than fall too significantly, would now seem to be a priority.
Secondly, given that energy prices are also falling, these price falls suggest that the continuing downward trend in overall inflation is very likely.
Thirdly, in that case, there is one set of prices that are now very clearly out of line with the whole economic environment. These are rent and mortgage costs, both of which are heavily influenced by the Bank of England's interest rate policy. Whilst it is undoubtedly true that financial markets are now pricing some expectations of declining interest rates into their mortgage offers, there will be no significant move until the Bank of England cuts their rate, and the same will be true with regard to the pressure on rent increases.
The result is that real household costs, not necessarily properly reflected in inflation calculations, are still rising in too many cases, and this is the likely cause of the downward pressure on prices elsewhere, which is now reaching the worrying stage where deflation could result. All the indications are that there is an urgent need for a cut in interest rates of a significant amount very soon. The problem is that nothing of that sort is currently even being hinted at as a policy option from the Bank of England.
Putting these three factors together, I continue to believe that if any organisation has mismanaged this crisis, it is the Bank of England. They raised interest rates when they had no reason to do so. Now, they are refusing to reduce rates on a timely basis when there is every reason for them to fall because the economic harm that they are creating is significant.
It takes considerable inability to get so much, so wrong, so often, but the Bank of England has achieved it.
Most worrying of all, though, Labour has committed itself to the perpetuation of the Bank's incompetent control of the economy. In that case, there may be trouble ahead.
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Given the background and pronouncements of Rachel Reeves, and the track record of the Treasury sadly I don’t see transferring responsibility to the Government would produce any improvement over the current arrangements.
For me the pertinent questions is not “Who is more competent to be in control of the economy?” but “Who is more democratically accountable?”
There is no silver bullet that will make anyone economically competent, although reading this blog is a good start. But better an incompetent politician, who is answerable to the electorate, than an “independent” central bank that is answerable to no one.
You completely miss the point Bernard I’m afraid. How can a voter use “democratic accountability” when they’re monetarily illiterate because they want all their economic thinking put on a plate for them? This plate being filled by half-baked shallow nostrums and lies created by media owned by the very wealthy and their grifter politicians!
That is a problem with democratic accountability in general. The most powerful arguments against democracy have historically centered on the idea that the masses are incapable or unwilling to understand the complexities of government and do not have the moral character to vote for anyone who they do not see as directly benefitting them.
In The Republic, Plato was very critical of democracy and thought that ideally society should be ruled by a class of philosopher-kings who would have the necessary knowledge, wisdom and moral character to carry out the task.
Even if such a class of people existed, Plato described no process by which they could come to power and, although there have been no shortage of self proclaimed philosopher-kings, I can think of no instance of it ever having happened.
Our economy is controlled by the self proclaimed philosopher-kings of the BofE. Are there any politicians on the horizon who would make a better job of it? Perhaps not, but there will never be any if we do not first depose these philosopher-kings and make it the government’s responsibility. I believe that most politicians are intelligent enough to understand the issues, at least in general terms, and I believe most of the media and the population at large are too. But in the prevailing situation a general discussion of the economy is too easily seen as pointless, rather like spending a lot of effort turning a cog which is not connected to anything else in the machine.
Per Bernard Hurley:
“Plato was very critical of democracy and thought that ideally society should be ruled by a class of philosopher-kings who would have the necessary knowledge, wisdom and moral character to carry out the task.” “Even if such a class of people existed, Plato described no process by which they could come to power.”
This is the exact come to power model of the Roman Catholic Church and look where it got them.
Yes you are right but only the state is in a position to make the right calls in regard to the economy. The Market Fundamentalist ideology that the state is a hindrance is half-baked Thatcherite nonsense as we have seen after 45 years of it. Clearly the issue is getting politicians in place who have smart economists to support them. An obvious example, as Richard has been persistently pointing out, is that allowing a quasi-independent central bank to operate where the governor can’t even figure out that the interest rate tool only acts as a brake and not an accelerator of inflation will screw up an economy!
Correction: “which will screw up an economy”
“Thatcherite nonsense”
I do not expect a response as it would be dissertation in length; I do not understand how Thatcher got control of the Tories (she was not a One-Nation Tory) and how she managed to remain in power as long as she did.
Does anyone think Thatcher rolling over in her grave over BREXIT? I an not well versed in the details of Thatcher’s policies toward the EU
If anybody wants ammunition that the Bank of England is not fit for purpose and there needs to be a reversal of its quasi-independent status then this interview with Stephanie Kelton should do it. The interview is long but sparkling with insights on her part in regard to the causes of inflation and its relationship to MMT theory. The central take-away has to be that there is so much inter-play between fiscal, monetary and market regulation that there can only be one body responding and that is central government (the direct opposite of Neoliberal Market Fundamentalism)!
I’d warmly recommend listening to this interview for anybody who recognises a main problem in the UK is too many people who want their thinking handed to them on a plate heaped with half-baked platitudes!
https://www.youtube.com/watch?app=desktop&v=LGlqnHTBP3I
Thanks
I think that should go on the blog
An hour and a half very well spent! Many thanks for this link.
The minimum wage has just gone up 9.8%. I think retail and hospitality employ a lot of people earning at or just above this level and will have to pass their higher wage costs on to customers.
There appears good reason to think inflation will stay above the 2% target for a long time.
This has always been said – and has never happened in any material way
It should be remembered the minimum wage is nowhere near an actual living wage. The suggestion is always that if wages went up to any reasonable level then employers would in the first instance have to let staff go (begging the question, why were they there in the first place if they weren’t needed?) and secondly close altogether and that that would somehow be a bad thing. This always strikes me as a nonsense; if businesses are rendered no longer economically viable by being asked to pay their staff a genuine living wage then surely they were never genuinely viable to begin with. Further, wouldn’t the freed up capital and labour reform into viable business configurations as a matter of course? It appears to me many politicians and alleged businessmen are petrified of the capitalism they seem to think they’re adherents of.
Thank you and well said, Richard.
From recent engagements with the shadow Treasury and Business teams, one hears that it was the personnel (Johnson, Truss and Sunak) at fault, not the (general thrust of) policies followed since 2010. Even then, Truss gets most of the criticism.
The teams say that they want to enhance the roles and independence of not just the Bank of England, but the OBR, too. One gets the impression that Reeves, in particular, wants to emulate what Brown did with the announcement of the Bank of England’s independence, a big bang announcement to catch the attention of Mr Market and cement Labour’s obsession with earning and maintaining Mr Market’s approval.
I wonder if any of the Labour apparatchiks and their centrist log rollers who take Richard to task on X have ever meet a trader or know anything about the casinos in the square mile.
A friend of mine worked in a merchant bank in the square mile for a number of years in the 80s until he couldn’t take it any longer. He tells a, probably apocryphal, story of a new employee opening an envelope to find a cheque for £1,000,000. He was so shocked that he dropped it and it went down a crack between the floor boards. He sheepishly reported the matter to his boss only to be told “Don’t worry about it, dear boy! If it’s important they’ll send us another one.”
Thank you, Bernard.
I can well believe that. It was a bit like that in the old firms.
Bit off topic but have you seen this book review from yesterday’s Guardian? Not quite MMT but pretty close. April 1st – mmm?
https://www.theguardian.com/books/2024/apr/02/outdated-and-misleading-is-it-time-to-reassess-the-very-concept-of-money
It looks like the book will be worth getting
At first sight “independent” always sounds good… the alternative being “partisan” (or similar).
However, it is independent only in a narrow, party political sense. Those in charge at the BoE are all closely inked to the banking community and are certainly NOT independent. So, as a first step, we need broader representation at the BoE with real power to question the “bankers’ orthodoxy”. This CAN be done without any major legislative change and now, given the manifest failures of the current regime, is a great time to make it happen.
The manifest failures are due to both vested interests and stupidity and have been correctly identified in this blog frequently.
Labour should be suggesting change in governance and challenging things like interest on CBRAs etc.. The fact it does not is down to either its own vested interests or stupidity. Which? I don’t know but both are scary.
Agreed
“Those in charge at the BoE are all closely inked to the banking community and are certainly NOT independent.”
I am currently reading a book on David Lloyd-George and the best part has been in his dealings with “Money” during WWI and coal strikes.
All this sounds like “Déjà vu all over again” to quote the great philosopher Yogi Berra.
David Lloyd-George said on many occasions that “Money” are nothing but frightful cowards who are always behave like frightened bunnies. David Lloyd-George was always getting unwanted, unneeded and non-productive interference from “The City”.
Things do not have seemed to have changed much.
Clive Parry, when the Australian Government announced last year that they would broaden representation on their central bank board, a New Zealand minister announced, somewhat smugly, that they already had.
All well and good, except that the purportedly independent New Zealand Reserve Bank and the NZ Government are continuing to follow a neo-liberal agenda (er, with malice incidentally).
Plus ça change, I guess.
It is the agenda that must change. And the structure. Then the people at the top must be accountable.
There will be institutional resistance to “outsiders” coming in. But, after a spell of such poor performance, it should be possible to force change upon them… but it does require “will” on the part of an incoming government that seems woefully lacking in Labour.
Would it work? Who knows…. but worth a try – what is the downside?
Precisely
What us the downside?
The Lords Economic Affairs committee initiated the current review of the Bank which was asking some of the right questions. https://www.parliament.uk/business/lords/media-centre/house-of-lords-media-notices/2023/march-2023/economic-affairs-committee-launches-new-inquiry-on-the-bank-of-england/
They then appoint Bernanke to head it which as an archetypal central banker ensures that nothing will be really challenged. I was in a small group meeting with a deputy governor a month or so ago. Smug, complacent and clearly confident that nothing much would change. Amongst the things he came out with:
– bank lending comes from deposits – ignoring what the Bank itself has explained
– they don’t need more diverse opinions, just more to spend on their models
– high interest rates have not contributed to inflation
– inequality is not an issue and has hardly changed
– the Bank should not have to worry about climate change or anything else – just inflation and the interest rate.
I could go on. All one’s most cynical fears confirmed. When you look at the Bank’s management, the MPC, and the Court (effectively their board), they are totally in-bred. Not a challenging view amongst them unless it’s even more conservative. There is a nexus of the Bank, the City and the Treasury which protects their shared interests. Needs to be broken up and fundamentally changed. As a start the MPC and Court needs to include business (esp SME), local government, civil society and dissenting economic opinions. Much the same for the Court.
Too few politicians ever express doubts about any policy of their own side.
I used to teach maths – both to students who coped well and to those who didn’t. With the latter especially, significant progress was possible by making it safe to say: ‘I didn’t understand’ / ‘What does x mean?’ / ‘Please explain again.’ / etc.
Yet the tabloid press and social media as well as parliamentary practice, all make it dangerous for people to admit any ignorance or lack of understanding.
Loyalty to party may now trump both truth and integrity. See, for example, https://www.theguardian.com/politics/2024/apr/02/twenty-labour-councillors-resign-protest-leadership.
I find it hard to believe that any member of either the Tory or Labour finance teams has read and fully understood very much of your Taxing Wealth Report 2024 https://taxingwealth.uk/ I am sure that most of them could understand it though some might benefit from a safe environment with a patient and competent guide – and there should be no shame in that; we each have different strengths and abilities to contribute. Even so, I suspect that some of them couldn’t.
I’m afraid that I find myself with similar thoughts about the Bank of England Policy Committee.
I doubt very much any Labour Party politicians have read the submissions on the House of Lords “Is the National Debt Sustainable” committee. Some of these being Richard’s and the Gower Initiative for Modern Money Studies. I think most have allowed themselves to be marinated in the Thatcherite shallow nostrums Starmer and Reeves have been putting forward! So much for party democracy! The Labour Party is now an empty husk suitable only for grifters like the Tory Party.
When Government itself is not prepared to own responsibility for the economy, but pass it to somebody else; a bank for example, we are all truly sunk, taking democracy down with us..
We are all truly sunk.
Yes but “the market” is its own Magic Money Tree where everyone gets enough money from the tree to live the life of Reilly (who ever Reilly was!) What’s the matter with you people that you refuse to believe in this fairy tale and keep clamouring the government has to intervene?
I suspect he was Riley….
While we sink in a political cesspit, in sewage and in squalor, think on this. The Rich list has just been published. To coin a phrase: Rejoice. The top 10 richest men (and they are, effectively all men of course); together, possess published wealth of circa $1.5Trn, from my rough calculation. An average $150Bn each. How do they get by?
They interviewed Martin Weal on R4Today – about BoE revising its inflation forecasting methods, and tried to ask him where the magic 2% target had come from and whether interest rates were the right control mechanism
Although this is heralded as a ‘root and branch’ relook at BoE forecasting, he avoided any mention of the effects of interest rates and inflation on the wider economy, didn’t answer why 2% was an approproprate target but hinted that 3% might give more room for manouevre. Utterly useless.
As expected….
I listened to Weale too – my thoughts exactly. See my comments above in an earlier post. Weale a paid up member of the BofE echo chamber.
You are getting very cynical Robin
And rightly so
When you look at what the Lords committee were asking for in their review, you could be quite hopeful. Questioning the Bank’s forecasting performance and looking for more diverse representation and opinions. Then you hear from the likes of Weale and the Bank itself and you realise that they are far too deeply wedded to their ideology – for thats what it is – to ever change. A totally closed group, including the Treasury and much of the City. Whose interests come before that of the wider economy, let alone society or the environment.
Just what they were taught at Oxford or LSE…
Quite so
It is all a perfect imitation of the fog of ignorance and confusion you can read in the ‘Committee of Secrecy Report’ on the Bank of England, produced by Parliament – in 1832. The name provides the clue. And the Committee renewed the Bank’s Charter; for abject failure (1825 Banking Crisis), and a demonstrable, and known record of financial instability.
Sound familiar?
Another history factoid: The “Great Run on the Pound” of 11 August 1931 was caused by the Bank of England and “The City”. How did the government react???? The wonderful government cut unemployment insurance to decrease the “deficit” thereby shoring up the pound and SHORING UP THE BANKERS!!!
BayTampaBay I don’t doubt you for a moment but some references would be useful!
@Bill Kruse – Ask and you shall receive: Black Diamonds by Catherine Bailey pages 303-306.
Aren’t we just tracking the US interest rates to keep the foreign exchange rates reasonably constant?
Except we aren’t…
Talking of the Guardian, here’s an event (info via general e-mail) they have scheduled for 16/04/24:
“Hello Alan,
The next UK general election is looming, and if the polls are right, Britain is headed for its first Labour government in 14 years. So what should we expect from Keir Starmer in power? From the persisting cost of living crisis to crumbling public services and the task of getting to net zero, the incoming government would inherit some daunting challenges left behind by years of austerity and political mayhem under the Tories. With Labour now facing a unique opportunity to change the country, what are – and what should be – the core principles driving their agenda to address these?
On Tuesday 16 April, I’ll be chairing a special livestreamed event with a panel of Guardian journalists and experts, including the Guardian political correspondent Kiran Stacey; the Guardian columnist Polly Toynbee; Lord Falconer, former shadow attorney general under Keir Starmer as well as lord chancellor under Tony Blair; and Tom Baldwin, the author of a new biography of Keir Starmer. Join us for the inside track on the people, the ideas and the events that might shape Labour in power. Book your tickets here. I hope to see you there.”
Gaby Hinsliff
Columnist, the Guardian
Me attending is no go, but I intend to write to her in the interim. Anyone else care to have a go? The e-mail address is gaby.hinsliff@theguardian.com or info@email.theguardian.com ………I would suggest doing both & don’t forget to reference the event iof doing so…
Is this being streamed?
According to the e-mail from them as above ” a special livestreamed event ” & that’s all I know.
So it can be signed up to without being present
It might be in front of a live audience hence the invitation to “book tickets” but possibly the “book tickets” might be to reserve the possibility of taking part in the “livestream” as it happens – I simply don’t know & I did not attempt to book anything. I will send you copy of the actual (rather than the copy content above) e-mail now to see if you can pursue it.
The booking fee for this Guardian event, circa £10, is, as far as I can gather, seems to be simply to stream it, rather than take part. I will therefore write to Ms Hinsliff well before the 16th April deadline. Anyone want to do the same?
Incompetence implicitly discounts deceit. I think both probably apply. The members of the MPC probably have in the back of their minds that high rates = good for banks and the wealthy. I suspect they avoid confronting that knowledge often, but when they do, they can vaguely reassure themselves about needing a healthy banking system and trickle-down economics, sufficiently salving their consciences. Of course, they don’t say it because that would be to admit they’re not observing their mandate. So I might call it wilful incompetence. Of course, I’m sure there are members that are simply incompetent, but I’m describing what I suspect is the predominant state.
There is one who might be competent
But only one
The Guardian’s livestream event on 16th April copied into earlier post, refers. The theme is “….With Labour now facing a unique opportunity to change the country, what are – and what should be – the core principles driving their agenda to address these?…”
I have now sent my submission well in advance. How about another 1000 of you doing the same? Forgive my sense of humour & vaulting ambition but I wonder what would happen if the lady journalist organising or chairing this event received such numerous “suggestions” on this theme.
Her e-mail is: gaby.hinsliff@theguardian.com
Any Takers?
I will try
Send her the Taxing Wealth Report 2024 video…
just 998 to go then! With some better (or at least warmer) weather on the eastern side of the country over the next day or so, try to get yourself out for a bit of R & R for a change.