I have said many times before that we are heading for a difficult autumn. I said so before most did. Andrew Bailey, who is determined to make sure that this is true, is doing his best to agree with me as to the causes. According to the FT:
War in Iran and the effects of extreme weather threaten to ignite a new burst of inflation, the Bank of England governor has warned, adding to the problems facing Andy Burnham's government ahead of next month's Budget.
Bailey was speaking in the House of Commons yesterday.
He did so on the day when, again, according to the FT:
The UK has paid the highest borrowing cost on a sale of its debt in almost three decades, as the global bond sell-off intensifies the pressure on public finances ahead of a crunch Budget.
A £4bn sale of 30-year debt on Tuesday was priced at a yield of 5.82 per cent, the UK Debt Management Office said, the highest interest rate on any gilt issuance since the DMO's creation in 1998.
The obvious solution to the debt issue being overpriced would have been to pull it from the market, but this obvious answer does not occur to the Treasury, which is dedicated to being dependent on the City of London.
In the same way, the obvious answer to the inflation problem that is coming our way, to which Andrew Bailey correctly referred, is to let it flow through the economy, because there is nothing that he or anyone else can do to stop it from happening. The last thing we need is an increase in bank base rates, which would push government interest costs even higher and make it harder for people who need financial support to survive this crisis to get it. That, however, is what he is no doubt planning.
We are facing a financial crisis not of our own making. That is indisputable. What is also undoubtedly true is that UK economic policy is intent on making it very much worse than it needs to be.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
There are links to this blog's glossary in the above post that explain technical terms used in it. Follow them for more explanations.
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Buy me a coffee!
Andrew Bailey and his magic hammer. What an idiot.
The only possible reason to deliberately make things worse is to enable – once again – a transfer of public assets – and private – into the hands of the really big private players in the economy.
Chaos is hard wired into modern capitalism.
In an ex-railway town near me, the Council invested in renovating a superb covered market place dating back to the 19th century. Since the work has been completed, it is not really full of vendors and is apparently losing the Council significant sums. The likelihood is that they may have to sell it (after their investment) or get someone in to manage it for them. But the real issue is the ongoing and sneaky austerity that is being imposed by the Treasury and other hoods in the BoE. The Council has tried to do the right thing to help its city centre thrive. It won’t be the only one. The economy it has tried to this in looks more and more dysfunctional.
And the convenient label for this is called ‘market forces’. Modern capitalism seems to build very little; all it seems to do is move existing assets around.
What is the difference between the present governor and any other previous governor who might be thinking about retiring to a nice house in Surrey’s stockbroker belt with a pension and perhaps several positions on the boards of financial institutions? I can’t see any. I do not begrudge his due pension which is part of the remuneration package, but I have to question whether his actions are directed towards improving the UK economy or pandering to the people who might sugar-coat his future beyond his present roll. It’s a question nobody will have the gumption to put to him.
We cannot avoid the inflation caused by the imbecile Trump and his forty thieves, but gov can certainly ameliorate its effect on ordinary citizens by scrapping fiscal rules, giving Bailey the boot, and putting public interest as first ahead of the gamblers in the City. I don’t expect them to do anything.
Blessed are those who expect nothing for they will not be disappointed.
Hello Richard.
Please tell me…
Who sets the valuation of £4 billion – the Treasury? The DMO? The City? Some other thing?
Who sets the yield of 5.82 per cent – the Treasury? The DMO? The City? Some other thing?
Thank you.
The Treasury/DMO set the value of bonds sold.
The bids determine the interest rate. So, the City, heavily influenced by BoE rates, QT and more.
Alan,
Bailey gets £560k + a year. The BoE puts, I believe, 50% of his salary into their pension schemc.
He gets paid regardless of any “success”.
Perhaps we should adopt the Chinese Emperors approach to payment of their doctors? They only got paid if the Emperor stayed healthy.
Though of course what is healthy for the majority of the UK population is low interest rates and policies directed to employment and so on. Instead we get austerity and ” we can’t afford it”.