Is Merve the Swerve the right person to stay in charge of BOE?
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The IHT launched an attack on Mervyn King.
http://www.dailymail.co.uk/money/article-1354632/Economists-rush-Mervyn-King-s-rescue.html
‘A central banker need not be loved, but at least he should command respect – and in Britain these days Mervyn King cannot count on either.’
If inflation heads towards 5% this week and the BOE leave rates unchanged, will he have lost credibility?
Does Merve want to keep the housing bubble without popping it, whilst other countries around the world have let natural market forces cut over inflated house prices?
Keep house prices high and savers interest rates low at all cost?
http://www.dailymail.co.uk/money/article-1354632/Economists-rush-Mervyn-King-s-rescue.html
‘A central banker need not be loved, but at least he should command respect – and in Britain these days Mervyn King cannot count on either.’
If inflation heads towards 5% this week and the BOE leave rates unchanged, will he have lost credibility?
Does Merve want to keep the housing bubble without popping it, whilst other countries around the world have let natural market forces cut over inflated house prices?
Keep house prices high and savers interest rates low at all cost?
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Comments
http://www.dailymail.co.uk/money/article-1355566/Rates-held-0-5-BoE-resists-rise-combat-inflation.html
"The BoE's decision to hold fire will also come as a relief to the government, which is hoping loose monetary policy will cushion the blow from its fiscal tightening"
So the government are happy with low interest rates but not worried about inflation?
I would think they will be praying for inflation. Inflation makes debt shrink.
It's nothing short of theft. Inflation is eating away at peoples savings, peoples pay packets and causing higher prices in shops and businesses. It is of course also inflating away debts...guess which the Government prefer.
The BoE are currently trying to deal with two competing economic forces. The first is the weak state of the economy - increase interest rates and you risk dropping into recession again. On the other hand inflation is going up - this would normally require interest rates to go up, in order to dampen down demand
Looking at the causes of inflation the BoE have decided they are transitory and once worked out of the system inflation will naturally come down.
The QE policy under Brown would have been inflationary - because the value of sterling goes down (and prices go up) - which is one reason it was not restarted, another being the belief that the decline in GDP was largely caused by the weather in the latter half of last quarter.
I agree with some of that but in reality any change in base rate is not likely to affect any recovery. The margin between base rate and the cost of lending to business and the public has never been as wide. Any rise in base rate has no need to be passed on to borrowers, unless of course banks wish to maintain their all time high differential.
There seems to be 'a race to the bottom' with various Countries claiming low value currency helps export therefore helps recovery. Meanwhile, folk see their real wealth reduced and prices rising. It is no coincidence that inflation helps the debt Government face and the fact that the inflation target has been missed by the BOE for so long and by so much indicates their priorities.
I started a thread about the the latest balance of trade figure having the largest gap since records began. Sunk without trace but the link showed that we import far more than we export and the fact that the gap is widening. That shows that a low interest rate to help an export led recovery is just wishful thinking.
The only real winners are Banks and Government, how does that help recovery?
How would raising interest rates, which effectively reduces demand, help keep down inflation?
It would strengthen the pound. Oil is priced in Dollars, the weak dollar has caused OPEC to reconsider barrel prices. If the amount they receive per barrel is worth less, they increase the barrel price to compensate. A weaker pound means it costs us more as well.
It can only reduce demand if borrowing costs are passed on to customers; with a record differential between base rate and Bank lending, there is no need to pass on any rise. It would be returning the differential to normal levels.
Supply costs may be rising but a weak currency makes it more expensive. It is a fine balancing act but Bank rates at 0.5% has never been seen before let alone for so long. In the meantime the BOE remit to hold inflation to a target has been ignored for just about as long.
With inflation, everything costs more. See Zimbabwe for the ultimate demonstration of the destruction it creates.
True, but a lot of people (like myself) are on variable rate mortgages and I'm sure the banks would be happy to raise their interest rates in line with the BOE. Don't forget, the differential between base rate and bank lending rates is also due to the banks factoring in a proper margin for risk.
Agreed. That's why I'll be asking for a 10% pay rise this year.