Why is the Bank of England standing aside from global action to stimulate economies?

This year many Central Banks and some governments have been taking action to prevent a world recession later this year or next. Recognising the sharp downturn in  the worldwide car industry, the lower levels of investment confidence and the general manufacturing slowdown, they have been keen to take action to stop it spreading into the consumer and service sector areas that represent the largest part of a modern economy.

Many Central Banks have cut interest rates. The Fed, despite a much faster pace of US growth than EU growth, has reduced rates twice, back to 1.75-2%. The Bank of Australia has cut rates from 1.5% to 1%, and the New Zealand Central Bank from 1.75% to 1%.  India has reduced from 6.5% to 5.4%, Turkey from 24% to 16.5% and Brazil down to 5.5%.

The European Central Bank already has a zero interest rate, so they have now resumed money creation at a pace of Euro 20 billion a month, to buy up more bonds. The Japanese authorities are also buying in more bonds and aiming to keep their ten year rate of interest at zero, with negative shorter rates. The People’s Bank of China has relaxed the amount of money commercial banks need to deposit with it., to encourage them to lend  more.  These actions are likely to prevent a general global recession.

Meanwhile the Bank of England has taken no such action. This is surprising as the UK car industry is suffering from the same problems as the rest of the world motor industry, and there has been a manufacturing slowdown in the UK although not as pronounced as Germany. UK growth is well  below US growth.

It is true that the new government is embarking on some fiscal reflation but on nothing like the scale of the US. There was no Bank of England response under the previous Chancellor who announced a progressive fiscal squeeze. It would be good to hear from the Bank more about this global trend and why they think the UK should not  be part of this general move to keep growth going.

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111 Comments

  1. Peter Wood
    Posted September 28, 2019 at 5:15 am | Permalink

    Sir John,

    Reducing interest rates from 1.5% to 1% makes no difference to the vast majority of businesses and individuals.

    We’ve had 20 years of fiscal mismanagement; we will shortly suffer greatly from that incompetence.

    Darwin was correct about nature, we will soon see that his theory applies to economics.

    • Prigger
      Posted September 28, 2019 at 8:33 am | Permalink

      “Darwin was correct about nature” We are awaiting nature’s adaptation to Climate Change bringing with it a whole host of new species and subspecies and diversity.

      • hefner
        Posted September 28, 2019 at 7:08 pm | Permalink

        Whether through Darwin’s natural selection or Lamarck’s theory of evolution these authors were quoting generations of plants/animals to see the effect of transformations/adaptations into new species, subspecies and diversity. So I would not hold my breath to see anything in the near future because of climate change.
        However for economics, some shock doctrine/extreme political disruption/disaster capitalism “brought to you by your favorite politicians” might have a much quicker impact.
        Interesting times.

  2. Posted September 28, 2019 at 5:17 am | Permalink

    Presumably you could ‘phone up’ the Chancellor of the Exchequer and ask him?

    • Lifelogic
      Posted September 28, 2019 at 9:19 am | Permalink

      Javid is probably too busy to worrying about Conservative Pary Islamophobia enquiries or some absurd faffing aroung with the penal stamp duty land tax system or similar lunacies. He has not even had the gumption to fire Carney or cancel HS2 yet.

    • Richard
      Posted September 28, 2019 at 6:56 pm | Permalink

      HM Treasury are trying to prevent any change by proposing a Remainers-only shortlist for the new BoE Governor, and excluding Gerald Lyons, the former chief economist at Standard Chartered. https://order-order.com/2019/09/10/treasurys-remain-plot-ensure-anti-brexit-governor-bank-england/

      “People, ideas, and technology—in that order.” (D Cummings/ John Boyd)

  3. Ian Wragg
    Posted September 28, 2019 at 5:18 am | Permalink

    The Treasury wants a recession so they can blame Brexit. It is stuffed with reamainers like the rest of the Civil Service.
    Why isn’t the PM instructing his Chancellor to take action.
    When is Boris going to present the May deal with extra commas.

    • Colon
      Posted September 28, 2019 at 8:41 am | Permalink

      … extra commas.” ? No never, comma is now Hate Speech

    • Lifelogic
      Posted September 28, 2019 at 1:33 pm | Permalink

      Javid is, I suspect, still another remainer. He voted for May’s putrid “non Brexit” W/A three times after all did he not? I assume he was one of the 200 who voted confidence in Theresa May long after it was clear that no one rational should have done.

  4. Shirley
    Posted September 28, 2019 at 5:19 am | Permalink

    Maybe it’s because Remainer Carney is still in charge at the Bank of England?

    • Rien Huizer
      Posted September 28, 2019 at 9:34 am | Permalink

      Apologize: Carney may be a charming man but he is of course not the MPC’s charm. He is the Chair.

  5. Mark B
    Posted September 28, 2019 at 5:29 am | Permalink

    Good morning.

    I read somewhere that Central Banks are not interested in growth but the soundness of the currency.

    Sterling has been taking a bit of a battering, mostly due to economic uncertainties and QE. I am all for low interest rates but, not at the expense of a sound currency.

    Naturally our kind host wants to see a strong economy as this increases the prospects of his party being returned to government at the next election. It is this politicalling of our economy and many other areas that has caused much harm. Politicians should stick to making, amending and repealing laws, and not interfere in businesses and our private lives.

    The US Fed is responding to reverse the measures it took earlier. The EU is a basket case and will be until they finally complete the Project. China needs to keep pedalling but their internal economy is growing and will continue to do so. So longterm they will be OK. Japan is a mess as it is no longer as competitive as its neighbours but has high debts to GDP and an aging population. India ? Seriously ? The difference between the haves and have nots is stark. Same too with Brazil. Interest rates are not going to affect the mortgages of poor in the slums of Mumbai and Rio ! /sarc

    Just let them do their job.

    • Rien Huizer
      Posted September 28, 2019 at 9:38 am | Permalink

      The poor in Munbai borrow from loansharks. No need for martgages os similar collateral…

    • Denis Cooper
      Posted September 28, 2019 at 9:50 am | Permalink

      Actually in terms of its trade weighted index, a measure of its average external value, sterling has been pretty stable for the past three years now.

      As shown on this chart on the Bank of England website:

      https://tinyurl.com/y5rqv3ub

      There was a 20% drop between the summer of 2015 and the autumn of 2016, with temporary gyrations around that pre-existing downwards trend before and after the EU referendum, but the trend has been flat since then.

      A bigger drop in the value of sterling, about 30%, had occurred during 2007 and 2008, which obviously was nothing to do with Brexit, and the index now is similar to that at the end 0f 2008.

      • Sharon Jagger
        Posted September 28, 2019 at 10:57 am | Permalink

        Bernard Connolly, one of the few to predict the financial crash of 2008 says the following,

        “In short, central banks have been, and are, the useful idiots of Marxism and indeed Communism. Having got things wrong in their response to the 1990s optimism, partly justified, about tech and about future incomes, they have distorted the key relationships in a capitalist society: the rate of interest, the rate of return on capital and the degree of consumer impatience (the rate by which people prefer consumption today to consumption tomorrow). A capitalist system (the clue is in the name) cannot function if those relationships are wrong.

        Can the nightmare scenario be avoided? Yes, it can. But the conveyor belt to Communism on which central banks have trapped us can be stopped and reversed only if real interest rates can be increased to match the rate of consumer impatience.”

        This was part of his article published in the Telegraph.

        If he’s correct, it’s rather worrying, as it would seem that many areas of life have embarked on the route to communism.

      • Mark B
        Posted September 28, 2019 at 5:48 pm | Permalink

        Dennis

        The pound has been falling against the dollar for over 10 years, but since the Referendum it has suddenly become news. I wonder why.

  6. Lifelogic
    Posted September 28, 2019 at 5:30 am | Permalink

    Indeed plus the UK is further damaged by a lack of competition in UK bank lending. Banks paying virtually (or actually) nothing on deposits and charging a fortune in margins and fees on any lending. Bank margins have increase hugely since 2007/8. They are also tied up in mostly misguided government red tape.

    Misguided red tape and green crap and proposed green crap is damaging the car industry too. Why buy a new car for say £30K when you old one worth perhaps £3K is probably a better vehicle (as the new one has had to meet new regulations or is electric with limited range and an expensive depreciating battery that tax many hours to charge? Or why buy a new conventionally fuelled car that might soon be banned from city centres?

    Buying a new car is not even green in C02 terms either as they have to be build which more than negates any small advantages they may have on fuel consumption.

    Carney (PPE yet again and full of green crap too) should have gone (never have come). I have not been impressed by Javid at all so far either. Hammond must never be allowed to return he was never a Conservative nor even a democrat. He was and is a tax to death economic illiterate and EUphile.

    • Mr Don Key
      Posted September 28, 2019 at 8:54 am | Permalink

      …green crap is damaging the car industry too… The words put forward at the Libdem and Labour Party Conferences suggest all vehicles of any description in regard to petrol and diesel will disappear withing ten years. Unfortunately, there is insufficient capacity and infrastructure in that time span to replace them with anything more than 1% of other. We should prioritise vehicles for the physically challenged and healthily transport our goods via donkey.
      I have received an email from Maisie the donkey in Little Hampton, an enthusiast and activist for the Green Movement who says she has open arms with the prospect of producing an extra 3000 of her babies per year to cope with the requirements of one street in her hometown. She adds ” I have a friend, Mandy, who wishes fertility treatment and demands it should be on the NHS so long has she does not have to give up her summer job at the seaside. So could she have it done in winter?”

      • Leaver
        Posted September 28, 2019 at 9:35 am | Permalink

        By green crap, you seem to mean the planet we live on and the air we breathe.

        I assume this is some political point to show you are not a snowflake, rather than arguing that the environment on which we all depend is crap and unimportant (as it is the most pressing issue of my lifetime and will continue to be so long after Brexit is done and dusted).

        • Bob
          Posted September 28, 2019 at 10:54 am | Permalink

          @Leaver (sic)

          By “green crap” we mean the hypothesis supported by dodgy computer modelling and the BBC which claims to know what the weather will be like fifty years time.

          Fifty years ago it was telling us that we would be living in an ice age by now.

          You know the saying, rubbish in / rubbish out.
          #Climategate

          • Lifelogic
            Posted September 28, 2019 at 6:42 pm | Permalink

            Indeed I mean fake and false green wash and things like the “renewables” that do not really work even in C02 terms.

        • tim
          Posted September 28, 2019 at 6:32 pm | Permalink

          Bob–Rubbish. There are many active volcanoes.
          When one of these Volcanoes erupts, everty hour it gives out more polution than the entire Man made polution in the last 500 years. Green crap!

  7. Lifelogic
    Posted September 28, 2019 at 5:39 am | Permalink

    Strange that the ex PM (who once called the wiser members of this cabinet “bastards”) now complains about the use of such dreadfully vicious and nasty words as “humbug” or “surrender”!

    Then we have IRA supporter Jeremy Corbyn (and many others) cynically trying to exploit the murder of Jo Cox. Perhaps we should also remember Airey Neive, Sir Anthony Berry, Ian Gow and the many other people murdered by the IRA.

  8. Wilfrid Whattam
    Posted September 28, 2019 at 5:52 am | Permalink

    It is about time that all sovereign nations caught on to MMT and therefore their true fiscal capacity. Will the Conservative Party do so. The Labour Party is economically ignorant of such matters despite having been informed by Bill Mitchell, so Boris needs to give a lead. Of course leaving the EU is a natural partner to sovereign freedom.

  9. Dominic
    Posted September 28, 2019 at 5:55 am | Permalink

    The evidence that cutting rates to zero doesn’t work is there right before your eyes. The ECB’s been cutting rates back to zero and now negative for god knows how long and still the Eurozone is struggling. Negative interest rates do NOT boost the economy. It’s not difficult to understand when you simply look at what’s staring you in the face.

    And spending ever greater amounts of taxpayers money on the bottomless pit that is Labour’s client state simply strengthens the opposition and their union and left wing backers

    You reform the State and then you deregulate. Slash income, capital and other taxes. Inject flexibility and private sector discipline into the State machine.

    Spending taxpayers money is EASY. We can all spend other peoples money and then claim credit for it. It’s a cowardly approach as it suggests a refusal to take tough decisions that will lead to disruption

    As ever the private sector gets kicked in the gonads 24/7 while the State sector acts like it’s party time 24/7, 365.

    The Tories are deluded. You have lost your way

    • Lifelogic
      Posted September 28, 2019 at 12:48 pm | Permalink

      The rates are far from zero when bank margins and fees are added on. Inflation too is quite low.

  10. grant
    Posted September 28, 2019 at 6:04 am | Permalink

    Problem is there are too many unknowns unknowns about- the governor is about to depart and with UK JIT about to be turned on its head with the expected choking off of Dover/ Calais route pushing imports/exports back into containers out of Hull and Felixstowe according to WTO rules nobody can predict with any degree of certainty/uncertainty what it will be in two weeks time. Looking out one window the Bank can clearly see only chaotic times ahead/ unknowns unknowns- can’t blame government or the Bank for not opening the purse strings when we have absolutely no idea where we’re going. The glass is half empty

    • cornishstu
      Posted September 28, 2019 at 8:58 am | Permalink

      Stop listening to the fear merchants, it has been stated numerous times by both sides they have no intentions of creating problems and have systems in place to ensure no delays also JIT does not just apply to the EU but from countries in the big wide world where WTO rules apply.

    • Denis Cooper
      Posted September 28, 2019 at 10:16 am | Permalink

      The French seem better prepared at Calais than we are at Dover:

      https://uk.reuters.com/article/uk-britain-eu-france/uk-customs-says-staff-shortage-wont-mean-brexit-anarchy-france-says-smart-border-ready-idUKKBN1WB21J

      Why is that?

      Why at this late stage is it still the case that:

      “… half of British businesses that trade with the EU were not ready for an Oct. 31 Brexit … “, so that “… there would be tailbacks at ports if trucks arrived without the correct customs documentation.”?

      And why is it still the case that:

      ” … we don’t have enough customs agents at the moment to cover the anticipated need …”?

      Who is responsible for this lack of preparation for a no deal Brexit?

      http://johnredwoodsdiary.com/2019/09/19/the-eu-and-empires/#comment-1056676

      Yet despite it all she still expects to keep her safe seat in the Commons, and when she retires from that chamber she can hope for a cushy number as an unelected legislator-for-life in the House of Lords.

    • Edward2
      Posted September 28, 2019 at 10:59 am | Permalink

      Grant
      JIT is a just a logistics system for ordering goods to arrive just as they are needed.
      It works for supplies with lead times of months as easily it works for those that can be delivered within a day.
      It is about planning.
      Planning for holidays, bad weather, strikes, road closures, vehicle breakdowns, customs checks, queues at ports and so on.
      Companies that operate these JIT systems have dealt with all these disruptions and more over the last few decades.
      Companies I deal with have already done all the planning and risk assessments They have plans in place for disruptions if the EU play us up.
      There are plenty of alternative suppliers and plenty of other ports of entry.

      • Gary
        Posted September 28, 2019 at 7:20 pm | Permalink

        You say “there are plenty of alternative suppliers and plenty of other ports of entry”- yes- but then it wouldn’t be JIT- but more container trade like via Antwerp depending on river and tide times traffic and port schedules same with Rotterdam and Felixstowe and then there’s the weather to contend with. Sourcing other suppliers other ports is not the same as Ro-Ro.

        • Edward2
          Posted September 28, 2019 at 11:35 pm | Permalink

          It would, you just allow a little more time in the plan.
          I get the feeling that you haven’t done much JIT procurement nor logistics management.

        • libertarian
          Posted September 29, 2019 at 7:19 pm | Permalink

          Gary

          Seriously? You do know that the VAST majority of JIT components are shipped by container right, you do know that driving components by lorry from Japan and China is a tad difficult right?

          Less than 6% of import/export traffic goes through the port of Dover currently . You do know that Dover is only the 10th largest port right?

          I’m constantly astounded by Remainers who haven’t got a clue about Just in Time logistics, international trade or business and who lecture us about it based on something they saw posted on facebook

    • libertarian
      Posted September 29, 2019 at 1:59 pm | Permalink

      Grant

      I’m at a bit of a loss to get all the explanations in around your “interesting post”

      So some factual bullet points

      1)JIT, means Just in Time its a process developed by Japanese industry in the 1950’s and adopted by UK & US companies in the 1970’s. Its a system of PLANNING delivery of parts and components that arrive at the right time.

      2) Dover handles just 6% of UK import/export

      3) The options are currently quite clear, there is only ONE . The law states we are leaving with no deal on WTO on 31st October

      4) Unless you’ve invented a time machine , EVERY future forecast is entering the unknown. Thats why a range of extreme scenarios are normally presented

  11. Lifelogic
    Posted September 28, 2019 at 6:12 am | Permalink

    Listening to More or Less on Radio 4 I learn that the Guardian’s main climate alarmist George Monbiot has claimed that one leg of lamb is about as environmentally damaging in as a transatlantic flight. This seems most unlikely – but even if it is only 20% true it makes walking or cycling for meat eaters an appalling thing to do in green/environmental terms.

    A leg of lamb contains perhaps 5kwH of energy. After cooking it (on gas/electric too) then digesting it and turning it to muscle power you might get about 1.0 kwh of useful motive energy, which might take you circa 8 miles walking or about 32 miles of cycling. So fuelled on meat walking or cycling these distances is about as damaging as one transatlantic flight is it? So why exactly are the BBC and the government so keen on endlessly encouraging cycling and walking as a green mode of transport? Can they not do simple sums in government?

    On these figures it should surely be banned for all meat eaters anyway. Still it seems I can offset my next trip to New York by just walking a few miles less then!

    • Anonymous
      Posted September 28, 2019 at 12:18 pm | Permalink

      Brilliant post ! (If only slightly off topic)

  12. Alan Jutson
    Posted September 28, 2019 at 6:31 am | Permalink

    Perhaps there is an interest rate cut in the pipeline..

    Just received mail from one of our major banks informing us of a reduction in all savings rates !

    Either they know something you don’t know, or they are wanting to make another increase in their margins, yet again.

  13. Martin in Cardiff
    Posted September 28, 2019 at 6:35 am | Permalink

    John, Sterling is already reeling from the effects of a looming train wreck exit from the European Union and of a global laughing-stock of a government.

    Why would the BoE want to add to its problems?

    • Denis Cooper
      Posted September 28, 2019 at 10:37 am | Permalink

      “… sterling is already reeling …”

      No, it isn’t, that is a fantasy, see the facts presented above:

      http://johnredwoodsdiary.com/2019/09/28/why-is-the-bank-of-england-standing-aside-from-global-action-to-stimulate-economies/#comment-1059182

    • libertarian
      Posted September 28, 2019 at 2:32 pm | Permalink

      Martin

      psst move away from financial predictions, you need to know what youre talking about.

    • libertarian
      Posted September 30, 2019 at 9:42 am | Permalink

      Martin in Cardiff

      Oh dear !

      Business confidence in the eurozone has suffered its biggest monthly plunge since the financial crisis as recession gloom descends on the region.

      Dwindling sentiment in factories on the Continent helped drag overall economic confidence to its lowest level in four years.

      Germany and Italy were among the most pessimistic as business confidence tumbled to a six-year low amid worries over shrinking order books, the European Commission said.

  14. oldtimer
    Posted September 28, 2019 at 6:42 am | Permalink

    Punitive taxes imposed by Mr Hammond have also damaged the car industry, in particular Jaguar Land Rover. If or when this parliament finally gets back to issues that matter, it should reflect carefully on the damage it has done to business and industry not only by its failure to deliver Brexit on time, but also by its adoption of misguided, virtual signalling policies.

    • Lifelogic
      Posted September 28, 2019 at 1:51 pm | Permalink

      Why buy a new car now? Electric ones are premature technology not really practical yet (for most people’s needs). Petrol and diesel ones may be in places banned soon. The rational thing to do for most people to do is to keep running the old one.

      One new rather small electric car comes without batteries & then you have to lease the batteries at £200 PM for say 5 years. I can run my two old cars including the fuel for less than this £200PM (and that is just this battery costing). Plus they are far better & far more flexible cars and cheaper to insure/maintain. An old VW convertible and Volvo V70 (with two useful extra rear child seats). The Volvo can do about 750 miles on a tank and then I can refill the tank in 3 mins. Try that in an £80K Tesla.

      Running the old ones is better in C02 terms too. Electric car are not as they often claim “zero emission” at all.

      • Edward2
        Posted September 28, 2019 at 4:24 pm | Permalink

        I agree LL.
        My two cars are 14 yrs old and 10 yrs old.
        Both running beautifully but both now worthless due to the recent demonising of diesels.
        They do well over 40mpg with 50mpg plus on a longer ru
        Over 500 miles per thankful refilled in 3 minutes.
        I shall continue to run them until future policies become more certain.
        I am not going to invest tens of thousands on replacements to find even more new legislation makes them unusable.

        • Lifelogic
          Posted September 28, 2019 at 7:30 pm | Permalink

          Exactly.

        • Fred H
          Posted September 28, 2019 at 7:48 pm | Permalink

          Ed2…You have probably sent some German car workers into a rage. How are they supposed to keep exporting their bells-and-whistles cars to the UK with selfish people like you ignoring their needs?

  15. Everhopeful
    Posted September 28, 2019 at 7:10 am | Permalink

    Interest rates I believe have been historically low for about 10 years.
    How has it helped?
    Businesses shutting, housing market non existent except when using appalling govt schemes and ( whatever is said) everyday prices are shooting up.
    Still suffering from 2008. Brick on elastic?

  16. Steve Reay
    Posted September 28, 2019 at 7:18 am | Permalink

    A reducionl in rates doesn’t always stimulate growth. Companies will not borrow if there’s no Demand. People will not borrow if their job is at risk. Create demand by putting more money in people’s pockets. Reduce tax and vat, no more funny money from the bank of England no evidence to say this has worked. In fact the true is the rich get richer.

    • tim
      Posted September 28, 2019 at 6:44 pm | Permalink

      Steve Reay- Good idea, how about we give 700,000 people £500 every week from tax payers money? Why not? We give that to the EU parisite every week!

  17. Kevin
    Posted September 28, 2019 at 7:38 am | Permalink

    This is your blog, and I am grateful for it. If I may offer one comment at the level
    of feedback rather than criticism it is this. These posts on the subject of
    monetary policy are very repetitive. Whereas I do read various commenters
    making the effort to challenge your apparent economic dogma on this subject,
    you, by contrast, do not seem to provide any argument to support your thesis.

  18. Andy
    Posted September 28, 2019 at 7:39 am | Permalink

    It is perfectly clear that the Bank of England is waiting – as it needs a little fire power left to try to save the economy from your Brexit.

    The rate is only 0.75% so it has little wiggle room to deal with the greatest economic act of self harm in UK history.

    At least my mortgage may go down a bit – which will compensate for some of your Brexit price rises.

    Meanwhile elderly savers – who voted for Brexit – will get paid less interest. My heart bleeds for them.

    • Anonymous
      Posted September 28, 2019 at 12:15 pm | Permalink

      I thought we were stopping hate crime here.

    • Fred H
      Posted September 28, 2019 at 7:50 pm | Permalink

      You have a mortgage? With your exceptional incomes I’d have thought you would be savvy enough to have paid it off – not paying excessive borrow rates to the finance banks etc.

    • Fedupsoutherner
      Posted September 28, 2019 at 9:21 pm | Permalink

      I see Andy’s rants about old people still get put in. He is saying nothing new.

    • libertarian
      Posted September 29, 2019 at 2:04 pm | Permalink

      Andy

      Think youre telling fibs again.. You told me some time ago that you had paid off your mortgage and also owned a very big house in France debt free being as your company before you closed it for no apparent reason was making in your words 7 figure PROFITS

  19. David J
    Posted September 28, 2019 at 7:42 am | Permalink

    The inaction of the Bank of England is a puzzle. As you say, Banks around the world are moving to protect economies.
    Carney and Co must be aware of this. Our company is global and supplies product to both the construction equipment and Truck manufacturing companies, and we are experiencing falls in demand of up to 30%!! The global slow down is very real. Brexit has not delivered any economic pressure despite the numerous and frequent scare stories. The B of E is way off track again

    • Cigmind Fried
      Posted September 28, 2019 at 9:14 am | Permalink

      The Bank of England does in fact work along normal traditional logical lines be they in a loop at times. It cannot get its head around the rampant and hysterical blooming of bizarre unfocussed thought patterns and language usage in Parliament.
      It is waiting for focus. Sanity.

  20. Annette
    Posted September 28, 2019 at 7:43 am | Permalink

    Anyone might think that it’s a deliberate attempt to ‘create’ issues & problems to be blamed on ‘leaving the EU’.

  21. formula57
    Posted September 28, 2019 at 8:02 am | Permalink

    Some explanation would be nice indeed and surely we all miss the Bank of England’s much appreciated forward guidance so we knew to expect the opposite.

    Let us though recall the most recent of the ECB’s targeted longer-term refinancing operations has been an immediate failure in encouraging lending, with €3.4 billion of loans advanced from a pool of some €430 billion. Monetary policy no longer seems effective and having the Bank tinker with interest rates may well be pointless.

  22. Posted September 28, 2019 at 8:11 am | Permalink

    Sir John, I would like to ask you this question which is related to your clear summary above.
    If we do leave the EU on 31st October as planned – completely and utterly, we will, willy nilly, be excluded from trade with Europe under present conditions. How badly trade will be affected I simply have no idea – has anyone?
    My question is this: what arrangements has the PM made with USA for trade there? President Trump is, in fact, despite all the silly, childish abuse, one of our strongest and most honest allies. USA products – I deliberately include Kentucky Fried Chicken here too – are very popular. So are US cars. I like Google…

    Reply We will not be prevented from trading with the EU. They and us are bound by WTO rules and they also by their own Treaty

    • Denis Cooper
      Posted September 28, 2019 at 11:06 am | Permalink

      “How badly trade will be affected I simply have no idea – has anyone?”

      As mentioned only yesterday, Mike:

      http://johnredwoodsdiary.com/2019/09/27/undermining-the-uks-bargaining-position/#comment-1058836

      according to expert advice provided to the German government in 2017 if the UK moved to trading with the EU on WTO terms then it could suffer a loss of economic growth equivalent to 1.7% of GDP over the long term.

      The same ifo institute produced another analysis in March and this time the estimated GDP loss for the UK would be a bit higher; but notably it would be the Irish Republic, not the UK, which took the kind of economic hit forecast by Philip Hammond with his rigged Treasury model:

      http://johnredwoodsdiary.com/2019/03/07/euro-area-growth-falls-away/#comment-1001064

      “… the number for Ireland under their worst scenario being 8.16%, while that for GB is only 2.76%; however with appropriate mitigation the damage for GB could be limited to just 0.5%, while that for Ireland would still be 5.39%.”

      Which explains why the Irish government has been making a mountain out of a molehill on the land border, their strategic objective being to keep the UK under swathes of EU laws to protect the Irish economy; however it does not explain why Theresa May was prepared to go along with that.

  23. Tabulazero
    Posted September 28, 2019 at 8:18 am | Permalink

    Typical Brexiter behaviour at play here: blame everybody but themselves for the mess they created.

    But in the new spirit of brotherly love, I will give you the answer a trained economist such as you already knows:

    It is because there is no point for the BoE to waste its ammunition prior to the hit the UK economy will get after the no deal Brexit you so much crave. Better wait for the day after.

    By the way, one of the arguments you gave for Brexit was that the vast majority of UK businesses do not trade with the EU.

    Isn’t it funny that the UK economy seems to be slowing down at a time the wider EU economy is also slowing down ?

    Could it be that the UK is less of an island than you thought ?

    When the recession will inevitably hit Europe and the UK, multinational companies, many of them of European origin, will have to take the hard decision to chose where to cut capacity.

    The will have to choose between cutting in the continent where their operations are part of the Single-Market and whose operating environment is fairly stable & predictable or in the UK with its uncertain post-Brexit relationship with Europe, ongoing constitutional crisis and the possibility of seeing a hard left unreconstructed Marxist government get into power.

    It is not going to be a difficult choice.

    REPLY The UK is slowing as I predicted owing to the UK fiscal and money squeeze.

    • Diminishing Degrees
      Posted September 28, 2019 at 9:43 am | Permalink

      I saw an interview on the media recently with the ‘Chief Economist’ of one of the many organisations which are cited every other week which no-one has ever heard about except presumably the five people on smartphones who work from home for each one. She said things which I learned were ridiculous to suggest via my 16th birthday gifts of two advanced economics books which I read and digested within one week. Apart from my great knowledge of economics which has never given me more than a poorly paid labouring job and never receiving more in income than three-quarters of that of a first year nurse, I would say we all need some kind of schooling and maybe in the future should build colleges and universities for higher learning in the hope some of us will hack it there. Universities as they call them now are good at rowing.
      The Law of Diminishing Degrees was never covered precisely in any of books available. I shall write such books for I’ve found a pen on a rubbish tip just outside a school.

    • Martin in Cardiff
      Posted September 28, 2019 at 1:20 pm | Permalink

      Yes, Tab, of course, “businesses” by number include all the one-person limited companies used by the gig economy etc., which is why the detractors of the European Union often quite that figure.

      Volume of actual trade in value terms tells the very different story to which you allude, on the other hand.

      • Denis Cooper
        Posted September 28, 2019 at 5:37 pm | Permalink

        Exports to the EU make up about 12% of UK GDP. Of that, a mere 0.1% of UK GDP is driven across the land border into the Irish Republic. The 12% does not justify having 100% of the UK economy under EU control, and a hundred times less so for the 0.1%. If the EU wants to be confident that the 0.1% will not include any goods which do not comply with its rules then we could pass and enforce an export control law to achieve that, and so relieve them of any new need to routinely intercept and inspect incoming goods at the border. Which would in any case serve no useful purpose while the UK maintained the current EU rules in force, as it intends to do for some time. But that assumes that the EU would be prepared to trust us to enforce the necessary law, and Michel Barnier has already made it clear that once we are out of the EU then we will be treated as untrustworthy:

        https://uk.reuters.com/article/us-britain-eu-barnier/eu-rejects-britains-key-elements-of-special-customs-plan-after-brexit-idUKKBN1KG2K0

        ““The EU cannot and … will not delegate the application of its customs policy and rules, VAT and excise duty collection to a non-member, who would not be subject to the EU’s governance structures,” Barnier said. “Any customs arrangements or customs union … must respect this principle.””

        I wonder why they even want to bother with a Withdrawal Agreement when apparently they won’t trust us to keep it.

      • libertarian
        Posted September 29, 2019 at 2:32 pm | Permalink

        Martin i C

        Oh dear is gig economy your thought for the week?

        There are 5.8 million businesses in the UK 5.4 million are micro and small businesses they employ 16 million people just about half the entire workforce

        The number of businesses that export ( globally not just to EU ) is 232,000 SME’s and 3,500 large corporates which means that 90.2% of all businesses DO NOT export anywhere

        The figures

        Domestic trade £1. 6 trillion
        Non EU trade £678 billion
        EU trade £ 649 billion

        As for Tabulazero , Of course the world begins and ends with a couple of countries in Western Europe…. not

        The trends that are similar in the EU and the UK are ALSO the same trends in other countries around the globe

  24. Caterpillar
    Posted September 28, 2019 at 8:33 am | Permalink

    Possibilities:
    0. Because inflation stopped going down and hit target.
    1. Because it is saving its gunpowder so it can blame Brexit uncertainty.
    2. Because it is doesn’t know which way it will have to move when Corbyn or Rudd become PM.
    3. Because there will be enough cheap money in the markets anyway.
    4. Because it realises lowering rates won’t have much effect (since it didn’t raise sufficiently)
    5. Because it belatedly realises the effect of low interest rates on redistribution of wealth.
    6. Because it is pondering mixed research on accommodative monetary policy on bank profitability and hence stability.
    7. Because it has thought more carefully how crashes in business cycle occur.
    8. Because it thinks Johnson and Javid will stay in place and end austerity; new public sector employment (e.g. in police, education, social care, speeding up HS2 and other infrastructure) will redirect resources that become freed up after Brexit, or compete for resources if not freed up (hence drive productivity). [The escape from Maastricht austerity thinking].

  25. Posted September 28, 2019 at 8:35 am | Permalink

    Would I be right to suggest the Australian base rate was reduced from 1.25%?

    • Rice
      Posted September 28, 2019 at 9:21 am | Permalink

      The Australian economy and central policy has been lucky in some senses as it is based on minerals, real tangible stuff, and not computer generated ‘things’. It has prospered in relation to economic-computer games played elsewhere. However its exports to China and the larger Asian market are now suffering because China is effectively going into deep recession trying to out-strength the US onslaught. China cannot win at this particular moment in its time. Good news is on the horizon of the East. Soon.

  26. acorn
    Posted September 28, 2019 at 9:16 am | Permalink

    “European Central Bank President Mario Draghi said the Governing Council should be open to ideas such as Modern Monetary Theory while noting they’re closer to fiscal policy and should be directed by governments.” (Bloomberg)

    The last eight years have proved that neoliberal monetarism does not work. (Interest rates set by central banks.) An interest rate drop from 0.75% to 0.5% isn’t going to induce business investment spending. Negative interest rates are equivalent to a government fiscal tax increase.

    Fiscal policy (government tax and spending) is far more effective in a country that issues its own currency. Unfortunately for austeritised UK and EU citizens, “deficit spending” is ideologically taboo. So, who is going to pay the UK’s large net import bill when the credit cards are maxed out?

    • Edward2
      Posted September 28, 2019 at 10:46 am | Permalink

      It is an odd form of austerity where government spending has kept rising.
      From approx 350 Bn in 2000 to approx 850bn by end of 2020.

      Maybe a reduction in tax leaving small and medium sized companies and individuals with a bit more to spend on themselves might be helpful.

      The base rate is set by the state to make government borrowing and paying back their huge debt cheap.
      For everyone else borrowing rates are 10 times and even more.

      • a-tracy
        Posted September 29, 2019 at 9:23 am | Permalink

        Edward2 – so why don’t the Tories shout this from the rooftops at every opportunity?

        Austerity – because of the mess ‘there’s no money left’ policies of the last Labour term in office and them not creating new wealth to spend, our government from 2000 is spending £850bn UP from £350 Bn by the end of 2020. This is nearly 3 x the spending.

    • a-tracy
      Posted September 28, 2019 at 1:21 pm | Permalink

      So if government spends more money within the UK does this help?

      • acorn
        Posted September 28, 2019 at 5:39 pm | Permalink

        Government spending is the most effective method of boosting the economy. About 20% more effective than tax cuts that tend to get saved.

        • a-tracy
          Posted September 29, 2019 at 9:18 am | Permalink

          As long as it increases the tax take and in future grows the economy that’s great, it’s when that spending is mis-directed into a white elephant project that things go wrong.

          Where would you spend the money to have the best future effect?

          I’d look at:
          a) Warrington’s Eileen Bilton type project tackling the most deprived communities within good commuter times from major cities.
          b) Liverpool, Manchester, Sheffield, Leeds, York, Hull linked private sector expansion.

          There needs to be more joined up thinking. Just investing in say doubling the size of a local hospital doesn’t always work or help the public. E.g. the North Staffs/Stoke hospital – no multi modal transport, no-one can get there, now it’s bigger they send local people to Stafford, Birmingham and Macclesfield with no public transport to connect them causing untold problems for young and old alike, the hospital parking is inadequate for staff and the public, why didn’t they build underground car parks before they put the new hospital buildings on top. The site is no bigger than it was 30 years ago but is dealing with so many more patients from a wider unconnected geographical area. I hate Labour people who just immediately accuse Matt Hancock of privatisation when he suggests 40 new hospitals it is Labour that privatises the NHS putting in charges for dentistry, optometrists, podiatrists, and parking charges so it’s no longer free every appointment costs a parking fortune.

          • acorn
            Posted September 30, 2019 at 12:06 pm | Permalink

            I have a comment awaiting moderation that explains further.

        • Edward2
          Posted September 29, 2019 at 9:40 am | Permalink

          Unfortunately it often reallocates money to projects which are a waste and which have little actual boost in the economy.
          And don’t forget that one person’s savings is another person’s investment after it is loaned out.

          • acorn
            Posted September 30, 2019 at 12:00 pm | Permalink

            Banks don’t lend costomer deposits, they are used as regulated capital “reserves”. If they don’t have enough,they will offer a higher interest rate to get some more. That is why the government insures deposits so you get some of your money back when the bank go bust.

        • libertarian
          Posted September 29, 2019 at 7:27 pm | Permalink

          acorn

          Government spending is the LEAST effective method of boosting the economy.

          • acorn
            Posted September 30, 2019 at 12:18 pm | Permalink

            So what is the most effective method Libby???

  27. Leaver
    Posted September 28, 2019 at 9:27 am | Permalink

    I think the Bank of England is wise.

    The prevailing opinion is that there will be recession in the next year or two.

    I believe the bank of England is keeping its powder dry in preparation for this, as quantitative easing is unlikely to work and depresses savings, hitting old people very hard.

    • Posted September 28, 2019 at 10:22 am | Permalink

      Gosh, ”Leaver”! That’d please Andy!

  28. Newmania
    Posted September 28, 2019 at 10:23 am | Permalink

    Independent central banks exist to stop politicians spending on their immediate needs. The economy has a longer cycle. Sir John wishes disguise Brexit’s recessionary poison until he can blame it on the weather. The Bank of England judge it wise to keep the little powder it has dry. . ‘Ho’ ..and its slightly bored companion ‘hum’ …
    I have important rugby to attend to now but hopefully I will be able to explain layer how this post epitomises much that is dysfunctional and corrupting about our current decline into “populism” . Laters

    • Edward2
      Posted September 28, 2019 at 4:28 pm | Permalink

      Doesn’t seem to be much ” decline into populism” in the UK’s current Parliament.
      They have decided to ignore the referendum vote result.

  29. Earley Riser
    Posted September 28, 2019 at 10:29 am | Permalink

    If we have a no-deal Brexit the car industry will close down in the UK. They don’t care about 0.5% on interest rates. Which is why the BoE doesn’t know what to do until you sort out this appalling mess. Blaming them is ridiculous.
    I see that Matthew Coats has quit as Director General of EU Exit Implementation. That’s a worry isn’t it?
    I expect he takes a different view on the real situation as opposed to the things that Mr. Gove tells Parliament.

  30. Sharon Jagger
    Posted September 28, 2019 at 10:38 am | Permalink

    If the Bank of England reduced interest rates then we’d do better.

    Bizarrely, it seems the B of E to want us to fail, so that it can be blamed on our wanting to leave the EU.

    Or is that too cynical?

  31. a-tracy
    Posted September 28, 2019 at 10:54 am | Permalink

    From reading the comments this morning it seems they think elderly savers, who pollsters think were the only ones voting for Brexit, will be hit hardest by this decision.

  32. Fred H
    Posted September 28, 2019 at 11:12 am | Permalink

    Could I please ask that nobody responds to the windup merchants, you all know who! Don’t give their idiotic, vitriolic ‘views’ oxygen….thats exactly what they want…..a single stupid comment generates 6 diss’ing their nonsense.

    • margaret howard
      Posted September 28, 2019 at 11:31 pm | Permalink

      Fred H

      But the intelligent remain contributors are the most interesting commentators on this blog compared to the many fanatical brexiteers who hog these pages with seldom anything new to say.

      JR is fully aware that despite his own political convictions were he to moderate us remainers even more than he already does, as agricola so rightly points out further down this page, his blog would not be read by many people who come here to listen to both sides of the debate. Who wants to read all these incessant rants?

  33. ian
    Posted September 28, 2019 at 11:33 am | Permalink

    They say that a vote of confidence is coming, i say bring it on.

    • dennisambler
      Posted September 28, 2019 at 2:54 pm | Permalink

      They talk of a vote of no confidence and then to seek the removal of Boris Johnson to be democratically replaced without an election, by Jeremy Corbyn.

  34. Kenneth
    Posted September 28, 2019 at 1:03 pm | Permalink

    I keep hearing the BBC repeating the accusation that Boris “lied to the Queen”.

    Is this true?

  35. Dennis
    Posted September 28, 2019 at 1:51 pm | Permalink

    Surely the more damage that can be inflicted on the car industry the better for all of us – to destruction even better. No more digging for materials and metal working, very much less need for oil extraction, no pollution from cars etc., etc. Isn’t this what the world and Greta is crying out for?

    If anyone really wants a car industry without fewer environmental consequences then reduce the population to a level so that no matter what it does the environment can handle it.

    • Dennis
      Posted September 28, 2019 at 1:52 pm | Permalink

      Sorry , cut out ‘fewer’

  36. Dennis
    Posted September 28, 2019 at 2:05 pm | Permalink

    Perhaps the world wide car industry could be environmentally acceptable if just the US military was shut down it being the world’s most polluting entity. It pollutes more than the five top chemical industries. I haven’t got the numbers to compare car manufacture with the MIC., has anyone?

  37. Denis Cooper
    Posted September 28, 2019 at 2:35 pm | Permalink

    Off topic, this article directly quotes the Irish Prime Minister Leo Varadkar:

    https://www.irishexaminer.com/breakingnews/ireland/taoiseach-seeks-alternative-brexit-plan-from-uk-953567.html

    It is important to understand that when he says:

    “workable”

    that excludes “anything that would imply a border on the island of Ireland”:

    http://johnredwoodsdiary.com/2017/12/02/the-irish-border/#comment-904608

    And when he says:

    “legally-binding”

    that means “subject to the EU’s governance structures”, including the ECJ.

    http://johnredwoodsdiary.com/2018/07/28/raising-productivity-a-policy-all-claim-to-like-in-general/#comment-950810

    And when he says:

    “giving us the assurance there will be no hard border north and south”

    that means we must give an open-ended promise to always jump as high as the Irish may demand in order to prevent them erecting a hard border on their side.

    • Martin in Cardiff
      Posted September 28, 2019 at 4:05 pm | Permalink

      Yes, a country, even a small one, becomes rather powerful, when it has another twenty-six nations of four hundred and fifty million people, and with a GDP of umpteen trillion resolutely behind it.

      Lil’ ol’ England is going to have to get used to that.

      • libertarian
        Posted September 29, 2019 at 7:38 pm | Permalink

        Marty

        Lil’ ol” UK is the worlds 5th largest economy ( bigger than the combined economies of 19 of the EU members) and according to the UN is the 2nd most powerful nation on Earth….

        Meanwhile the EU is sliding backwards , India has overtaken France as a world economy and Brazil is breathing down the neck.

        • libertarian
          Posted September 29, 2019 at 7:43 pm | Permalink

          Whoops

          Apologies wrong way round. Brazil has moved ahead of France into 6th place and India is catching up

        • margaret howard
          Posted September 29, 2019 at 10:29 pm | Permalink

          libertarian

          France is the SECOND largest EU economy after Germany. with UK in third place.

          https://learn.stashinvest.com/largest-economies-of-europe

          However, if you Brexiteers achieve your wish and we leave then we shall lose both Ireland and Scotland with just a rump England left. Thank you very much.

          As the saying goes:

          From clogs to clogs in just 3 generations.

    • Gary
      Posted September 28, 2019 at 7:44 pm | Permalink

      As far as I know the Irish PM is on his hols in California- why don’t you give him a break_ here’s the thing Denis if the government really wants the backstop removed they can replace it with a legally binding guarantee to hold an Irish border poll ie. in the event of things not working out. Nothing could be simpler- the poll could be held on the same day as the vote for Scottish independence and following that England can set up its own separate parliament just like the majority of English people seem to want.

      • Denis Cooper
        Posted September 29, 2019 at 7:46 am | Permalink

        You could enlarge your knowledge by looking at what the Irish Examiner reports, link provided; if he wanted the break you suggest I give him then he could have it by not talking to the press.

        As for your own idea:

        How could the UK government give any guarantee which Michel Barnier would find credible, given that he has already told the world that he regards us as untrustworthy?

        Why on earth should we guarantee a poll on a border which the Irish government pretends does not even exist at present?

        Is it not already part of the Belfast Agreement that there will be a border poll if there is a clear demand in Northern Ireland for such a poll to be held?

        Worst of all, the most stupid part of your suggestion, having replaced the backstop with a guarantee of a border poll, what would you do if a poll was held and a majority of the people in Northern Ireland voted to stay in the UK, so that the border would continue in existence?

        Would you then say “We need the backstop back”, or would you say “We cannot have the backstop, so we need to find some alternative arrangements “? If the latter, why not just say that now?

  38. Posted September 28, 2019 at 4:38 pm | Permalink

    Cutting interest rates takes the interest income out of the economy via the interest income channels. Thus it is deflationary.

    As Japan and the EU has proved for years now. That is after Japan spending gazillions of Yen.

    Monetary policy does not work it is like pushing on a bit of string. Fiscal policy is the answer as Trump has done it. Tax cuts and increased government spending is the way to go.

    • Martin in Cardiff
      Posted September 28, 2019 at 5:40 pm | Permalink

      The dollar is a reserve currency, and so there is more scope for money printing to offset those measures than would be feasible in the UK.

      • Posted September 29, 2019 at 4:10 am | Permalink

        Sorry Martin nothing to do with reserve currency.

        Fiscal space is the key and if there are enough ” skills” and ” real resources ” available to absorb both the tax cuts and increased government spending.

        a) The public sector and private sector working hand in hand to make sure there are enough so inflation does not happen.

        b) Making sure the skills and real resources are in the right areas of the economy where they are needed.

        Reserve currency has nothing to do with it. We set the interest rates on gilts and can set the rate at anything we like and governments are monopoly price setters. We have the wrong people at the BOE.

      • libertarian
        Posted September 29, 2019 at 7:41 pm | Permalink

        Marty

        Sterling is also a reserve currency

  39. Rule Britannia
    Posted September 28, 2019 at 4:44 pm | Permalink

    Although the article doesn’t explicitly say so, in reading it I got the feeling that we were supposed to read between the lines and suspect the establishment as having Brexit-related reasons for this – basically, wishing for our economy to do poorly so as to blame Brexit?

    Otherwise… the article rather conspicuously fails to suggest a reason (are we supposed to conclude that JR has no thoughts/suspicions of his own as to their reasons?) – unless the suggestion is incompetence on the part of Carney and co rather then Brexit-related collusion?

  40. James Skinner
    Posted September 28, 2019 at 5:04 pm | Permalink

    Why? In one simple word; politics.

    The Bank of England has made a subjective and arbitrary judgement about Brexit, which is that leaving the EU reduces the ‘supply potential’ of the economy and leads to persistently higher inflation than otherwise would have been the case. Necessitating higher rates than before.

    That’s why their inflation forecasts keep showing CPI of 2% @ the end of every two year forecast horizon. Only time will prove them wrong, unless there’s a new governor who’s willing to force some fresh and serious scrutiny of those assumptions.

    And the market doesn’t seem to believe the BoE one little bit anyway. The SONIA curve implied on Friday, a Bank Rate of 0.50% by September 2020. Not at any point in the next 12 months does the market currently price a Bank Rate of any more than 0.75%.

    https://westpaciq.westpac.com.au/wibiqauthoring/_uploads/file/RATES/2019/priced_in/WhatsPricedIn_20190927.pdf

  41. ian
    Posted September 28, 2019 at 5:11 pm | Permalink

    There is only one thing NS is forgetting with her deal with labour and that is that in a scottish ref, the decision has to go back to the UK parliament for the 650 MPs to have the final say on the advisory ref vote.
    The only way for NS to fight back is to apply now for an ECJ court ruling on the high court in London ruling on the EU Referendum which took place in 2016 under EU law.

    If the ECJ agrees with the High Court in London then you have lost, and they will have to roll out there judgement to all other countries in the EU In EU law if it applies to one it applies to all.
    that goes for NI as well.
    Which is now the NEW law in the UK but not in the EU.

  42. agricola
    Posted September 28, 2019 at 5:13 pm | Permalink

    Your moderation has reverted to being a typical politicians joke. Lifelogic 6 me 0. Tell me why we should take any notice of anything you say on posting. you are as convincing as Corbyn on economics.

    • Mark B
      Posted September 29, 2019 at 11:50 am | Permalink

      I agree. But the thing that gets me, is our kind host complains about the number of posts he has to moderate but, will do nothing regarding the Troll who flame this site and generate the bulk if the posts in responses.

      Sir John. I and many others have been coming here for many years now. We are both grateful and genuine in our opinions and we do care and appreciate that you both pay for and administer this site yourself. But failure to deal with the Trolls and not treat those like agricola as long time guests is beginning to test some. Please at the very least deal with the Trolls. They will be gone, hopefully, soon after BREXIT but you will lose many good and worthwhile contributors if not.

      Mark B

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