You know what I am going to say.
Too little.
Too late.
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Correct.
But, at least, now heading in the right direction.
Reporting I have seen suggests inflation will decrease to 2% by April. Given that the economy is a dynamic, non-equilibrium, system, inflation is unlikely to stop reducing at precisely 2% (and bear in mind that interest rate changes typically take about 28 months to have full effect).
So what will the BoE do when, in May, I inflation is below their desired value of 2%?
I am not sure where you got your inflation forecast from
The BoE does not agree. See figure 1 in here.https://www.bankofengland.co.uk/monetary-policy-report/2025/november-2025
“Inflation to hit 2pc by April, says Bank”, by Szu Ping Chan Economics Editor, Daily Telegraph, 12.21pm today.
Ok, the Telegraph is a dodgy paper.
It is.
How can the vote have been so close though? Only 5-4 in favour? What are the 4 naysayers expecting for heavens sake? The economy is flat, there is no inflationary pressure anywhere in it.
I have read their comments – they think they are nowhere near enough to 2% – and think further cuts are very unliklely – the rearguard action is strong.
And still 4 voted against it!
Richard,
I think you are right regarding the BoE base rate.
However the BoE institutionally wants its interest rate weapon restored to what they believe is rude health which I guess is somewhere between 3.5 and 5%. I suspect their City supporters want the same. Hence all the rhetoric about days of cheap money are over.
I can’t see them getting down to 2% or ECB territory unless under strong direction.
Bearing in mind some countries still have strong trading surpluses do you believe Bernanke’s savings glut hypothesis is relevant?
As you note, focus on the institutional preferences matters here, because this is not a neutral technical debate.
It seems that the Bank of England does want its interest-rate “weapon” restored to what it regards as normal operating territory. That belief would seem to be rooted in an older monetary policy culture in which interest rates were seen as the primary, almost exclusive, stabilisation tool. The City largely shares that preference because higher rates favour financial income, strengthen creditor power and legitimise a greater role for markets in disciplining government. The rhetoric about “the end of cheap money” is as much ideological as analytical.
There is nothing inevitable about a 3.5–5% base rate being “healthy”. That range reflects past institutional habits, not any economic law. The reason rates have been lower for much of the past two decades is not policy decadence but weak demand, high inequality, excess saving at the top, and underinvestment in real productive capacity. In that context, forcing rates up simply transfers income to asset holders and suppresses activity.
On Bernanke’s global savings glut: yes, it remains relevant, but it is incomplete. Persistent trade surpluses in some countries do create excess saving that seeks safe assets elsewhere, pushing down yields. But that glut is itself the result of structural imbalances, wage suppression, inequality and weak domestic demand. It is not an external force acting on innocent central banks.
So the issue is not whether rates can be lower – they can – but whether institutions are willing to accept a world in which monetary policy plays a smaller role and fiscal, regulatory and industrial policy do more of the work. That is ultimately a political choice, not a technical constraint.
You have probably heard Andrew Bailey talking to Amol Rajan on the Today Programme. Really not sure if he’s on the same planet as the rest of us.
He is not.
I was very disappointed with Amol; I’ve written to him several times now to ask him to interrogate not acquiesce when the Q of debt comes up. I’ve explained it to him!
He’s a smart guy but as Twain says, “it is easier to fool people than to convince them they have been fooled.”
Amol read English so he will have learned his economics from his colleagues, namely Faisal:(((