The Bank of England did not cut interest rates yesterday, although three of the nine members of the Monetary Policy Committee wanted to do so by 0.25 per cent.
The Fed did cut rates the day before but indicated that the pace of cuts will need to slow to manage continuing inflation risks. Markets did not like that.
Only the ECB retains the courage to push rates downward, and it needs to do so given the state of many EU economies.
What is happening? Three things.
First, inflation paranoia continues to grip the UK and USA. Europe, meanwhile, has noted there is a real political and economic crisis outside the world of central banking that needs to be addressed.
Second, the media in Europe knows that reduced rates give people a chance to afford life. In the UK and especially the USA, the impact of interest rate changes on the value of stock markets appears vastly more important to the media than anything else.
And in the UK, in particular, the claimed concern is about the supposed re-emergence of inflation - which, as I have shown, the Bank knew might happen at least nine months ago - and which has become, as a result, an excuse to try to hold pay increases down when there are good reasons why pay rises are required so that spending power in the economy is restored.
In summary, then, there is a detachment in the UK and US from reality when considering this issue. In the ECB, there might be more realism.
You cannot run an economy with detachment. The Bank of England is a player within the economy, not an observer of it. The game it is playing, pretending to comment whilst actually seeking to influence the very things it claims to be dispassionate, but worried about, is all a sham. Andrew Bailey and his cohort are power-playing at cost to the UK, its people and its economy. We really do not need that.
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“The Bank of England is a player within the economy, not an observer of it. The game it is playing, pretending to comment whilst actually seeking to influence the very things it claims to be dispassionate, but worried about, is all a sham”.
This is an important issue, that is often overlooked. The BoE wishes you to believe that its decisions on monetary policy can bring down inflation, but not increase it. It knows this is false from its own long history. In 1825 the BoE policy managed the banking crisis so badly the bank almost brought the whole financial system down. It survived largely by accident. That is only a sample of the BoE’s history of bungling. If the tool you are using to inspect a specimen in the petri dish is part and parcel of the specimen itself, you are not in a position to conduct an independent judgement on the specimen, or even an independent observation.
My view is that BoE wants to be both – a critical observer and a player but its influences remain unseen – you can tell that it is certainly not listening to us out here – it is listening to unseen forces in my view and there is nothing democratic about that.
Thank you, Richard.
Just to complicate matters: In Reeves’ brief stint at the Bank, one of her rotations took her to Bailey’s team, i.e. he was her line manager for a few months. Bailey and my former manager, a City grandee and former Treasury junior minister in the Major government, spoke recently. He confirmed the allegations about her employment record at the Bank. Reeves is in no position to call Bailey to order.
“Second, the media in Europe knows that reduced rates give people a chance to afford life. In the UK and especially the USA, the impact of interest rate changes on the value of stock markets appears vastly more important to the media than anything else.”
This is a very interesting point. And this media interest into the value of stock market influences how an average person thinks. I’ve spoken so many times now with people with not much, very little or no (so majority of population) savings – of which they might have a couple of thousands in stocks – and they were all of the opinion that stock markets rising is somehow beneficial to them. When in reality it has no influence or is even against their interests.
Spot on