Interest rates

Months ago I urged the authorities to override the Bank of England’s MPC and slash interest rates to head off recession. At last the cries are coming from all parts of the spectrum to do just that, months too late.

I have also urged a sharp reduction in UK spending on bank shares and bank nationalisation. You cannot do the one without the other safely. If they press on with both interest rate cuts and with massive spending on bank shares, expect more strain to be taken on the exchange rate and in due course on the government debt markets.

It means still dearer imports. less spending power and more risk. Why can’t these people in authority understand the large numbers they are playing with, and see they are putting too big a burden onto taxpayers?

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10 Comments

  1. Johnny Norfolk
    Posted November 3, 2008 at 9:48 am | Permalink

    I think you ask a question and they cannot answer.
    They have only known spending.
    They cannot get their head round anything other than spending it is the problem not the solution.

    I see the conditions of the IMF loan to Iceland is reduced spending and an INCREASE in interest rates to encourage saving not spending.

    I think we need to consider reducing rates very carefully it could make matters worse in the long term.

  2. Tony Makara
    Posted November 3, 2008 at 10:41 am | Permalink

    Cutting rates in isolation is a dangerous game to play given the fragile nature of Sterling, hopefully if cuts are to come they will be co-ordinated with trading partners to dampen the effect of currency speculation. I doubt that a cut in rates will have a telling effect because there is too much personal debt in the system and won't boost consumption as it took credit to do that previously. The fact that our capacity to export has been severely weakened over the last decade means we shouldn't see exports as being a quick-fix. The only thing I can see coming from such a move is trouble for the Pound and inflation.

  3. haddock
    Posted November 3, 2008 at 10:56 am | Permalink

    I have a few thousand pounds in a bank account earning a pittance in interest in a world that is without money. Now do I go along with your cry of lower interest rates ? do I just spend it profligately on a huge imported plasma TV ? do I invest it in an Icelandic bank and get a far greater return.
    In a free market, if the economy wants my money they can hire it from me, not expect or compel me to 'give' it to them.

  4. Brian Tomkinson
    Posted November 3, 2008 at 11:03 am | Permalink

    In all your arguments for interest rate cuts you have given the impression of a complete disregard for the interests of savers. Do you and your party support the suggestion in today's Daily Telegraph that interest on savings should be tax-free?

    Sounds good to me

  5. Rose
    Posted November 3, 2008 at 1:37 pm | Permalink

    How are we ever to get young people back to saving responsibly, both to buy their homes without borrowing to bankrupt the world, and to provide for the education of their children, their healthcare, the maintenance of those homes, etc. and to put enough by for their old age as well, if we have paltry interest rates? Until people learn again to save seriously for the future we will never have stability or see off the threat of inflation. I know you have been entirely consistent in your advocacy of low interest rates, and in your opinion that inflation is not an immediate threat, and I respect your judgement. But with the post-war baby bulge now living on its savings and not wishing to increase the population any more than it already has been this decade, the future looks terrifying.

  6. not an economist
    Posted November 3, 2008 at 3:10 pm | Permalink

    Japan has suffered from recession for well over 13 years now. During the nineties they utilised various tools to combat the problems – direct subsidies to private industry, slashing interest rates (down to zero or near zero as I recall). It did not work. Japan languished in recession. It might be argued that our economy is stronger but then so was the Japanese up until the 90's. Back in the 70's and 80's it was hailed as a paragon to be emulated by all countries – benefitting from private enterprise and indicative planning. As I say it came to nought in the nineties. I dont really see it working here and now in the UK tbh.

    • rose
      Posted November 6, 2008 at 2:13 pm | Permalink

      Perhaps it is its long recession which makes Japan such a pleasant country to live in, despite its huge population. That and its homogeneity. Boom brings many social ills as well as good things in its wake.

  7. Man in a Shed
    Posted November 3, 2008 at 4:07 pm | Permalink

    If interest rates become negative in real terms, which they are now, what is the incentive for people and institutions to lend money (aka save) with our banks ?

    Could it be possible that once interest rates drop the only supply of money will be from the government printing presses ?

  8. David morris
    Posted November 3, 2008 at 5:54 pm | Permalink

    Sorry John, this will all turn out to have been Brown's idea and nobody else in the UK will have ever mentioned it before. The BBC will fawn at his vision, decisiveness and leadership whilst pointing out that nobody on the tory benches has ever said anything about interest rate cuts, ever in the history of mankind. Vince Cable will of course be interviewed at length.

  9. adam
    Posted November 3, 2008 at 8:02 pm | Permalink

    Quantum of Solace breaks box office records for release day takings.
    £4.9 million beating the previous £4.0 million taken by Harry Potter and the goblet of something or other.

    Could be worse

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    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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