Why doesn’t the MPC have a couple of days off?

The Governor should keep base rate where it is this week. The problem is not that base rate is too high. The problem is the shortage of money at sensible rates for the banks to borrow and lend to customers. That requires a different fix.

It has been fashionable this week for people to find it too difficult to get to work. The MPC could proftably catch that habit this month. Their track record has been so poor, keeping rates too high for too long, and now taking them down in panic to levels where savers are badly damaged. At a time when it is also fashionable to say banks should just collect deposits from the public and lend that money on, they should be careful not to make it even less worthwhile to place money on deposit. Penalising the savings habit at a time when they want the financial system to rely on savers is silly.

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7 Comments

  1. Posted February 5, 2009 at 8:13 am | Permalink

    I believed the MPC had a single raison d’etre – to keep the inflation rate below an agreed target. This seems to be hardly mentioned. They now appear to be motivated by political considerations which are the absolute responsibility of the government and nothing to do with the MPC.
    The MPC have shown that the ‘independence’ is a facade. They increasingly look like a mere tool of government. They should be wound up.

  2. Posted February 5, 2009 at 8:14 am | Permalink

    May I suggest 365 per year?

  3. Posted February 5, 2009 at 8:48 am | Permalink

    I read a number of economists calling for zero rates but they never explain the mechanics. If its demand management then as you say it will have no effect since it will not be passed on. If they think savers will stop saving simply because the rate goes from 1.5% to 1% then they are wrong in fact people get more nervous and save more!!!

    If it is to print lots of money to inflate away debt then we will go straight back to the 70’s and the BoE will have no credibility and will have to be taken over by the Govt again.

  4. Posted February 5, 2009 at 9:45 am | Permalink

    I fear your wise words will fall on deaf ears – we shall see later today. The bank bosses must be delighted with King and co. allowing them to improve their margins, or their own bonuses, at the expense of the savers/depositors most of whom were doing the prudent thing whilst they were enriching themselves in their world-wide casino.

  5. Posted February 5, 2009 at 10:22 am | Permalink

    According to a report I read yesterday, 64% of mortgage products require a deposit of 25%.

    A purchase of an average £160,000 property would require savings of £40,000 plus costs, plus enough left over to furnish the place.

    Fat chance of revival at that rate.

  6. Posted February 5, 2009 at 8:06 pm | Permalink

    The MPC is just operating within the flawed framework that Gordon Brown set up in 1997 – which is legally binding !

    We ought to restore an inflation target of 2% on the more reliable RPI-x measure and give MPC members fixed non renewable terms of seven years. The Bank of England should regain the powers it lost in 1997 and in addition to that should be able to enforce less bank lending when asset prices get out of hand and greater levels of capital being held by banks during a boom to tied the banks over during leaner periods. Banks should be able to make credit easily available during a recession to stop people losing their homes and/or businesses while the brakes ought to be slammed on to stop an asset boom getting out of hand. MPC members should be vetted by the Treasury select committee and approved via majority vote in the House of Lords.

    Ending tax on savings , shares/dividends and pensions entirely would get the savings ratio up , would encourage share ownership and would repair the damage done to our pensions by Gordon Brown. Ronald Reagan was right to say that if you tax something less then there is more of it. I think that a decent accountant could give the QUANGO state the once over and find the economies to fund these tax cuts thus moving money from the bloated Brown created client state ( a drag on growth as the evidence shows ) to the private sector ( an engine of GDP expansion ) which would produce an economic upswing as the Irish evidence proves.

    My Bank of England reforms would ensure greater economic stability and could underpin a Conservative program designed to ensure economic recovery.

  7. Posted March 15, 2009 at 5:07 am | Permalink

    Nothing wrong with this, at all, people should get it more.

One Trackback

  • By In the Shadows Chancellor « A Tory Pier’s Blog on February 5, 2009 at 11:40 pm

    […] John Redwood has it right in his dismissal of the latest moves by the MPC and sums it up perfectly with this line; “Penalising the savings habit at a time when they want the financial system to rely on savers is silly”. In my opinion, John has been one of the most right thinking commentators throughout the whole credit crunch and now recession and has yet again put the Shadow Chancellor in the shadows. It seems from the comments on ConHome, that many of the grassroots feel the same too. […]

  • About John Redwood


    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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