As the Guardian notes this morning:
The pound has dropped to a three-week low this morning, after the governor of the Bank of England said it could make larger cuts to interest rates if the jobs market slows quickly.
AndrewBailey told The Times that “slack” was opening up in the UK economy, following the increase to employers' national insurance contributions. That slack should create downward pressure on inflation.
Bailey insisted: “I really do believe the path is downward” for interest rates.
What are the problems? They are threefold.
Firstly, Bailey has also issued a warning that he will not go too quickly because the inflation rate is still above target. In other words, although it is very clear that the UK economy is facing a crisis which can only get worse, he is not willing to take the action to prevent that crisis developing. In that case, whatever cut we get will be too small.
Secondly, this rate cut will be too late. You cut in anticipation of a crisis, not when it is apparent that it has already emerged, as he is suggesting he might do.
Thirdly, interest rate cuts have a long time lag before they have any impact on any real economic activity. That lag can be up to two years. I have been forecasting that this crisis has been emerging for at least that long, but Bailey has ignored all the evidence. He is, therefore, part of the problem, and not a part of any solution to any economic crisis that this country might now have.
When will those who supposedly supply the UK with economic management learn the most basic things about macroeconomics?
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Bailey + Rachel from Accounts = austerity + a potentially deep recession.
Heh presto economic growth pulling out of the recession.
Genius fiscal policy.
Thank you, John.
I don’t disagree, but must quibble about where Rachel worked. She was in complaints.
Bailey knows that, too, but is keeping his powder dry.
Bailey cares not a dot for for macroeconomics and perhaps nor would most people these days on – what? – £600K per year?
Things haven’t moved on one jot in the UK since Thatcher’s 1983 conference speech when she declared government has no money of its own. That’s nearly 42 years of mindlessly nonsense!
https://www.margaretthatcher.org/document%2F105454
Is this incompetence on Bailey’s part, or is it by design? Does his stance help certain people, and if so, is the Bank of England completely compromised and in the hands of bad actors? Am I mistaking incompetence for malice? I understand you may not have the answers, but it does feel like the BoE is marching to the beat of someone else’s drum.
As a sailor I was taught “If you are thinking about reefing down then you should already have done it”.
Same applies for interest rates. Given the lags involved (a year or more) he should cut already.
Silence from Mr Bailey would be preferable to the nonsense he spouts…. but action would be be better.
PS Forgive the sailing reference but currently stormbound on the west coast of Ireland…. having had two reefs in all week.
What about a third?
Thanks
If you need a third you should be in a safe harbour already (although I have had to put it in once on this trip).
Currently on a buoy in Crookhaven, too windy to dinghy ashore. My crew are getting an education on MMT! How long before they abandon ship?
Interestingly, I sail with quite a few Brexiteers and Tories…. but they all get MMT.
🙂
The slack opening up is presumably more unemployment or short time working.
All for inflation generated either in global markets or via profit protection (if the latest paper by Isabella Weber is a guide).
What damage to inflict on ordinary people’s lives!