The Bank of England wobbles

Members of the Monetary Policy Committee are now telling us that maybe they should cut interest rates after all. Having watched as their tight money policies predictably slow the economy, they now express surprise at what they have done and seek some change of tack.

I am not proposing a 25 bp rate cut. I would urge them to look at the substantial tightening their Bank has undertaken through changes to the capital buffers, tough guidance on lending and the cessation of the Funding for Lending scheme. There is practically no money growth in the UK, implying continued slow performance from the economy.

Meanwhile the reintroduction of Quantitative Easing by the ECB has led to a spurt of money growth which probably heralds some pick up in the economy later this year. The Fed has stimulated a sharp rise in money growth in the USA which probably means a decent recovery for an economy still growing faster than the other advanced countries as the year advances.

Why has it taken the Bank so long to notice the obvious? Why are they still so out of line with all the other major Central Banks of the world? This institution got the ERM comprehensively wrong, the banking crisis and great recession hopelessly wrong and now is getting the world slowdown wrong.

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85 Comments

  1. Posted January 17, 2020 at 6:01 am | Permalink

    That’s what you get when you employ a financially incompetent Canadian as governor
    Now you are about to replace him witb a home grown one.
    We can expect a similar conclusion with the Brexit negotiationss when we give everything to the EU with only vague promises in return.

    • Posted January 17, 2020 at 8:48 am | Permalink

      Stop moaning old chap. You are about to get the Brexit you voted for and the inevitable consequences.

      And, yes, it was the Brexit you voted for. Even if you didn’t read the small print about how silly it would be.

      Ding dong. That’s my Big Ben impression – seeing that the people you support can’t arrange to ring it.

      • Posted January 17, 2020 at 6:02 pm | Permalink

        Freedom is Priceless

      • Posted January 17, 2020 at 6:52 pm | Permalink

        Andy, What is the point of you repeating “you are about to get the Brexit you voted for”? You have no idea what Leave voters want, and you wallow in your ignorance. After all, you can’t even say why you, as a Remain, believe the UK is incapable of running our own nation.

        Read the WA – the EU remains in control of UK laws, courts, fish, borders, trade and money until at least Dec 2020. If you cannot address those facts – and it’s plain to you cannot – then you aren’t achieving anything. Except whingeing.

        • Posted January 18, 2020 at 6:29 pm | Permalink

          NickC,

          Whingeing, it sounds a bit like you on the RU empire and your 1850 temperatures

    • Posted January 17, 2020 at 1:43 pm | Permalink

      Too right Ian!

      The Muppets haven’t gone away. The swamp needs draining, and Boris has the mandate to clear out the detritus. Carney might be off soon, but there’s a lot of others need booting out with him if we are to turn this economy and the wider society around.

    • Posted January 18, 2020 at 6:32 pm | Permalink

      Ian,

      He is actually also British but incompetent I am not sure people who know about economics share that view of yours. Or is like the economic policy of the Brexit party?
      Namely no policy

      • Posted January 18, 2020 at 11:04 pm | Permalink

        Your posts are getting less interesting and more repetitive the day bill.
        It will soon be February 1st.

        • Posted January 19, 2020 at 11:42 am | Permalink

          Edward 2

          And your case April 1st

  2. Posted January 17, 2020 at 6:19 am | Permalink

    Exactly right.

    The banks are very uncompetitive, tied up in red tape and very, very slow too. Property deals I used to be able to do with say £200K of my money and £400K of borrowings now take £400K of my money and £2ooK of borrowings. Plus the banks are very slow to act, fussy on terms and want very high fees and margins.

    We now even have (thanks to the FSA it seems) HSBC charging 40% on all personal overdrafts and Lloyds Bank charging nearly double this in there fip off daily fees. Effectively withdrawing the personal overdrafts of all sensible borrowers. This while paying perhaps 0.2% on deposits a gross margin of 20,000% or nearly 40,000%. What on earth is going on here with the FSA? It is clearly not a free market with real and fair compeitition.

    • Posted January 17, 2020 at 8:21 am | Permalink

      How can the govt countenance such enormous disparities between borrowing and lending rates by the banking cartels?

      • Posted January 17, 2020 at 7:34 pm | Permalink

        Government does not normally lend banks money, but they borrow money like a man with no arms. They have no incentive to redress the balance.

  3. Posted January 17, 2020 at 6:36 am | Permalink

    Boris Johnson orders clampdown on judicial review system after blasting Supreme Court for ruling his suspension of Parliament last year was illegal.

    Good, the Human Right Act has also been endlessly used to invent new laws. The other problem is that lawyers, as a group, have a vested interests and suffer from group think. They tend to want more and more law, more level of courts, more EU and more power for judges to stretch and invent new laws endlessly. It can be hugely damaging.

    • Posted January 17, 2020 at 7:41 am | Permalink

      Lifelogic: ” the Human Right Act has also been endlessly used to invent new laws. ”

      And used by that corrupt ‘legal’ practice ( tautology ) that has recently gone bankrupt to prosecute British Soldiers and milk the British state.

      Why aren’t the asset forfeiture regulations being used against this type of criminal activity?

    • Posted January 17, 2020 at 7:59 am | Permalink

      There is far, far less common law – declarations by judges – based on the Human Rights Act than there is based on other statute, particularly property and family law.

      I mean, hardly any by comparison.

      However, the ruling under HRA that an accrued pension entitlement is the property of the beneficiary has saved countless people’s company pensions from the receiver where their employer has gone bankrupt.

      Would you rather that they had all lost them?

    • Posted January 17, 2020 at 8:51 am | Permalink

      Because they need to be (re) elected and you don’t, something always missing from your posts.

    • Posted January 17, 2020 at 11:15 am | Permalink

      Lawyers are acting in their own interests, growing their businesses. And guess what, Parliament is full of them. They exceed scientists , engineers, medics, and educators by a large margin. As you effectively point out, their presence far exceeds their value, and at times ,as in the last Parliament is malicious.

  4. Posted January 17, 2020 at 6:47 am | Permalink

    Fraser Nelson is surely right today in the Telegraph.

    Hopelessly out of date and ruinously costly: Tory knives are out for HS2
    Now is the time to scrap expensive bad ideas, and the Government has its eyes on high-speed rail.

    Why are the government dithering over this it is appalling value for money it probably does far more harm than good.

    • Posted January 17, 2020 at 7:24 am | Permalink

      If the Tories don’t deliver HS2 London -Birmingham-Manchester (including catching up and getting ahead of schedule) they will once again be confirming their desire to stop the potential of those two cities and hence the country. The next thing they’d be doing is replacing the spend with some token transport gestures in ‘the regions’. After Labour’s intentional pro-London and destroy Birmingham policies of the mid 1940s and mid 1960s, it is about time for a reversal of this long standing damage. Not being able to deliver a bit of track is pathetic.

    • Posted January 17, 2020 at 9:14 am | Permalink

      I have no doubt your views are well researched. Nonetheless plenty of commentators think the possibility of a world recession late 20/21 quite high.

      The Banks are also looking at the risk profiles of their current lending book, not liking what they are seeing, hence the tightening.

      The question is whether action by the BOE can work it’s way through the economy quickly enough to mitigate sufficiently the risks. I doubt it.

      Given what has happened in the past they are right to be cautious.

      You want liquidity buffers to be reduced, if their lending books contract won’t that be automatic? Why not persuade the BOE to work with the Banks to distribute excess capital back to those who own the Banks, the shareholders say on a ‘one off’ basis and not share buy back that does nothing?

      This should give an instant boost to the economy in terms of additional sending power and increase HMGs tax take.

      • Posted January 19, 2020 at 4:59 pm | Permalink

        My complain is that they are not looking at risk profiles are charging all the same rip off rate driven by the FCA new rules.

    • Posted January 17, 2020 at 2:25 pm | Permalink

      Er … Boris will never dump HS2. It would send a terrible signal to the North. Yes, it might make economic sense. It would be political madness.

      Also, as environmental costs are priced into markets, people will need faster trains if flying becomes prohibitively expensive – as is likely to become the case.

      Oh … and please let’s not debate the environment again. Whether you agree with it or not, like Brexit, it is a done deal and pointless to debate. And in both cases I say Hurrah!

      • Posted January 17, 2020 at 9:18 pm | Permalink

        Leaver, I’m not giving up arguing against the CAGW hoax. It’s just like, in principle, explaining the facts about the EU empire two decades ago. As for HS2, what makes you think it’s popular in the North and Midlands?

        • Posted January 18, 2020 at 6:28 pm | Permalink

          NickC

          there is no EU empire but there are obviously a number of issues that have passed you by over the past few decades

          • Posted January 18, 2020 at 8:43 pm | Permalink

            So the Five Presidents Report and its statements about moving to a United States of Europe with an extended number of member nations, an armed force, a flag, many embasies and an anthem are all myths then bill.

      • Posted January 17, 2020 at 9:46 pm | Permalink

        ” let’s not debate the environment again.”

        That’s what Globalists and their useful idiots always say. They don’t want to discuss it because the sceptics are shooting holes in their hypothesis.
        Science is never settled, and it’s not about “consensus”
        “hide the decline” eh! Why for Heaven’s sake would you want to do that?

        • Posted January 18, 2020 at 9:49 pm | Permalink

          No, quite the reverse. I keep providing evidence on the climate, while being presented with opinion masquerading as fact. Global average temperatures do not correlate with sunspots, magnetic fields, cosmic rays or any of the other bunkum I hear. Likewise cherry-picking a few glaciers that haven’t shrunk is not an argument. And, to be honest, it’s obvious that burning huge amounts of coal and chopping down vast numbers of trees is going to have some effect on the climate. As I said before this is a political argument, not a scientific one.

  5. Posted January 17, 2020 at 6:50 am | Permalink

    Good morning

    blockquote>I am not proposing a 25 bp rate cut.

    Good, we need to support the pound and normalise interest rates. We also need to protect and encourage savings.

    Easing of money is a must and we really need to look at competition in the high street. Is there anything here that can be done ?

    • Posted January 17, 2020 at 7:33 am | Permalink

      Mark B,

      You are correct on interest rates the continuing extreme low base rate has many problems (saving life-cycle, bias to monopoly and industry concentration among them).
      As noted by Lord King more focus is needed on rising debt levels and the coupling to world imbalances – this needs global action.
      Alongside normalizing intetest, as you indicate, UK needs more bank competition. In Germany (though it is changing) smaller regional banks have been able to create the credit required for ‘local’ smaller and medium sized businesses (that been in a position to compete profitably).

    • Posted January 17, 2020 at 8:40 am | Permalink

      Business rates, auto enrollment, excessive regulation and a dysfunctional banking system are damaging small businesses.

      Staff virtually have no competition for their jobs in small businesses because the owners are stuck with them. You cannot fire a staff member for being a bit lazy and the lackluster attitude of one staff member can infect the others.

    • Posted January 17, 2020 at 9:05 am | Permalink

      @Mark B; Why do we need to protect the “High Street”, that is not to say there doesn’t need to be measures to protect retail vs. on-line.

      My “High Street” did not exist 150 years ago, and like in so many towns over the last 30 years or so it has simply changed its location, what used to be the edge of town retail parks are now in effect the High Street, although few choose to call it that.

      My own “High Street” would actually be far more useful/valuable as a residential location, either as conversions or new build Town Housing, being within a short walk of the mainline railway station, bus services and cafe’s, bistro’s, pubs and other entertainment that already serve the area due to other factors.

  6. Posted January 17, 2020 at 7:00 am | Permalink

    The actions of the ECB are not the actions of a health practitioner encouraging a patient to take up more exercise and eat healthier food. No, it’s the actions of a surgeon desperately trying to save the life of a patient on the operating table.

    QE is a political (yes, political not monetary) policy response to a crisis of such desperation that those who practice it have almost nowhere else to turn. It is the actions of those with the mindset that all will be well if only human (consumer) behaviour can be organised and controlled

    Of course when Japan and Germany became economic superpowers following WW2 there was no QE or bank lending buffers or any other of this tosh. No, their economies were driven by ingenuity, industry, imagination, expertise and engineering. They became successful as a result of human creativity not because a central bank pulled a lever here or tweaked a rate there.

    Economies thrive when you unleash the power of the entrepreneur (Apple, MS, Dell, Kellogg, Google etc etc) and their ability to seek out opportunity. That is what drives growth NOT tinkering with rates or pumping worthless pieces of currency into ‘the economy’ with fingers crossed hoping for the best

    To think that some of these people actually run nations. God forbid someone with courage would take the correct decision ala Thatcher in 1979.

    Reform, reform, reform. Have the political courage to reform. Stop avoiding difficult issues. You were elected to do a job of reform not to perpetuate the current leftist hegemony with your Keynesian nonsense and your embrace of all things ‘progressive’.

    Your party was elected to force through UK sovereignty, confront the rise of identity politics, impose reform, inject common sense into politics and crush the left and their abuses. So far you’ve deliberately avoided most of this. If Labour weren’t so poisonous you’d be on the other side

    • Posted January 17, 2020 at 7:27 am | Permalink

      Germany and Japan were also assisted by ultra competitive FX rates Vs the rest of the world and in Germany a mindset and tax rates to encourage business revival. In the UK we had nationalisation and sky high tax rates (98% being the highest in certain circumstances). The conditions and context need the exist in which the entrepreneur can flourish. Otherwise you make good points.

    • Posted January 17, 2020 at 7:34 am | Permalink

      Dominic,

      I think we’re on the same side.

      Sir John, you cite the US and QE as a positive example ie central bank buying government bonds with ‘created’ money. Lets look at facts: The US is now on QE4. Surely, if QE’s 1,2 and 3 didn’t work, there’ll not be a different result from QE4, other than simply a bubble in asset prices, (S&P 500 P/E now at 25x – median is 15x) . What was the definition of madness again….
      The EU (and Japan) are enjoying negative real interest rates AND QE; 8 years of ‘growth’ requiring worthless money flowing freely from the ECB. IS that your definition of sound economic management? Our problems are STRCTURAL, government fiddling is only making things worse.

    • Posted January 17, 2020 at 7:45 am | Permalink

      After the war, Germany and Japan, not to mention other countries, were devastated. American money, thanks to the UK emptying its gold reserves, helped rebuild. They built on technical developments made in the war and turned swords into ploughshares. We on the other hand nationalised healthcare and much more besides.

    • Posted January 17, 2020 at 8:07 am | Permalink

      It is very simple, cut the size of government in half, cut taxes, cut red tape, go for cheap on demand energy, get fair competition in banking, cut all the climate alarmism. Get the government off the backs of the productive and watch the economy grow. Get real freedom of choice in healthcare, education and everywhere else it is possible. Rather than dire free at the point of use state virtual monopolies. Cull state loans for all the pointless worthless degrees about 2/3 of them.

      • Posted January 17, 2020 at 8:09 am | Permalink

        Plus sort out the endless dire lefty, climate alarmist propaganda from the idiotic leftwing, unscientific, anti-US, PC, dopes at the dire & unfairly funded BBC.

    • Posted January 17, 2020 at 8:45 am | Permalink

      Hear hear!

    • Posted January 17, 2020 at 9:01 am | Permalink

      Absolutely.
      Bending over backwards to appease the Left has been a disastrous policy.

    • Posted January 17, 2020 at 9:04 am | Permalink

      Dominic, you have pretty much summed up the problem. Much better to rely upon the competitive forces of the free market, than the altruism of politicians. The various government ministers congratulating themselves on “saving” Flybe is not a good start. The government has no business “saving” any company. Companies should stand or fall on their own merits or demerits. If they fail their assets will be turned over to others who are highly likely to use them in a more productive way. The government and public sector needs to be hugely downsized, to the tune of making at least one in three public sector workers redundant and free to engage in more sensible activities, instead of busily interfering and disrupting production.

    • Posted January 17, 2020 at 9:25 am | Permalink

      @Domonic; Third paragraph; of course their growth was due to QE, or what at the time was called (in Europe at least) the Marshal plan, Western Germany was supported by US money so it didn’t remain a basket in the face of the threat from Russia.

      “[pre-Thatcher] Keynesian nonsense “

      Oh you mean like the Keynesian nonsense during the 1950s, and indeed some of the 1960s, when the UK truly was a economic power house? Most of the UK’s problems were caused by international politics, not home grown economic miss management, the Suez crisis, the 1973 middle east oil crisis & the Nixon’s effective abandonment of the Bretton Woods system.

    • Posted January 17, 2020 at 11:05 am | Permalink

      Spot on.

    • Posted January 17, 2020 at 11:12 am | Permalink

      Quite agree and especially with your last two sentences.
      Surrender and appeasement or non-discusssion is their policy in all matters, not just financial, economic and fiscal.

    • Posted January 17, 2020 at 11:25 am | Permalink

      Japan and Germany recovered more quickly after the war because they didn’t spend money on the armed forces as we did and they were greatly helped both financially and organisationally by the US and ourselves. Who’d win a war Eh?

      • Posted January 17, 2020 at 6:17 pm | Permalink

        To update your point, Germany and Japan have had an almost freeride on defence since 1945, so it is often asked why they don’t have similar defense costs, say 2% of GDP, as us. The answer is of course, do you really want Germany to re-arm?
        Germany, with its re-established industrial and economic vibrance, has now almost achieved what it set out to do nearly a century ago, thanks to its dominance of the EU, so loved by the rest of Europe..

        • Posted January 18, 2020 at 3:06 pm | Permalink

          I would put it another way.Germany,Japan and S Korea have had to endure continued occupation by the USA,the costs of which they contribute to.

          With an understanding of geopolitics-esp the Heartland Theory and the Rim Theory-it all makes sense.

      • Posted January 17, 2020 at 7:04 pm | Permalink

        But both are great engineering nations. We abandoned our engineering.

        • Posted January 17, 2020 at 9:06 pm | Permalink

          @Anonymous; “[the UK] abandoned our engineering”

          Steady-on! Some people or companies might have abandoned engineering but mush has not, the real problem is so much has been bought up by our international competitors. The skills and machinery still exist here in the UK but the profits end up off shore (or at least decisions as to how those profits are reinvested are made off shore).

  7. Posted January 17, 2020 at 8:02 am | Permalink

    In the Telegraph there is a video report of a conversation between Phil Hogan, EU commission, and Peter Mandelson. As Trump and his team no longer seem interested in reforming the WTO, and the EU believe their rulebook to be the gold standard of the world, they hope that they could step in and take the lead on trade regulation along with China!

    Gawd help us if the protectionist and heavily regulated EU should take the lead in global trade regulation!

  8. Posted January 17, 2020 at 8:09 am | Permalink

    “The substantial tightening their Bank has undertaken through changes to the capital buffers”. The BoE raised the countercyclical buffer and cut the Pillar 2A buffer. The net change is marginal and UK banks have not changed their internal capital targets.

    “There is practically no money growth in the UK”. The latest data show annual M4 money and M4 lending growth at 4.0% and 4.6%, respectively.

    Reply M2 is hardly growing, car loans well down, credit scarce

  9. Posted January 17, 2020 at 8:32 am | Permalink

    Your regular criticism of the BofE is rather like the football spectator who watches from the stands saying: ‘if they change the manager, team, tactics or whatever, everything would be much better’. The bank has to manage many variables to achieve its objectives, set by the government. If you have a problem with this, talk to your fellow Conservative, Mr Javid.

    • Posted January 17, 2020 at 7:09 pm | Permalink

      the criticism is rather like the football spectator who watches from the stands saying ‘ but why is the manager, who used to be the groundsman, playing one keeper, six fullbacks, and four midfielders, we can’t score and the game is made incredibly boring….’

  10. Posted January 17, 2020 at 8:39 am | Permalink

    This blog should refrain from encouraging people to act as consumers. Its concern isn’t economic growth but how varying levels of economic activity reflect upon a party’s popularity or not as the case maybe.

    I would encourage people to save (politically unpopular) rather than spend (politically popular) in preparation for a recession, which at some point will happen as rates start to rise, which they will.

    Maybe the blog should focus on ways to reform the morally and financially bankrupt British State and its allied public sector’s political appetite to feed of the wealth creating and efficient private sector without which this nation would seriously falter

    The blog’s obsession with elevating the interests of the political above the interests of the apolitical is a cause for concern

    We want to see a radical and reforming government not a coterie of politicians desperate to maintain the status quo while pandering to the aggressors now waging war using the vicious tools of identity politics

    Purge the left from academia and our public sector. Criminalise the playing of the race card. Halt the rise of identity politics perpetrators who have become a proxy force for the Marxist left with the aim of stoking resentment and division against the majority using victim-hood politics

    Free speech is the foundation of our culture. There are now forces determined to crush this most important freedom. Some of those forces reside in the Commons, in academia, in wider politics, within Labour and within Labour’s client state

  11. Posted January 17, 2020 at 8:44 am | Permalink

    In fairness Boris and his team have only been in office for 36 days and it is unrealistic to expect them to change and recover from three years of non-government. Yes, he became PM in August but inherited a complete mess in parliament from which, thank heaven, he has pulled us clear.

    With no thanks to the previous chancellor we have had an extra 15 months of a B of E Governor clearly out of his depth, and it is going to take a while for his influence to evaporate amongst the lower ranks in the bank.

    The new man has a similar task to turning a 500,000 ton tanker 180 degrees, in order to change the monetary policy and encourage and make it easy for businesses to expand and seek out new markets. Let’s give him 6 months and then put him under the microscope.

    • Posted January 17, 2020 at 9:36 pm | Permalink

      @George Brooks; Yes the economy is akin to a 500,000 ton tanker, and yes it’s going to take time to turn around but first you need to actually make the decision to turn and then act upon that decision – he’s had close to 6 months already (so you’re suggesting a period of grace for one year in effect), he could have swung the ships wheel to starboard back in August, its not as if he and his Cabinet had formed a new government, as Cameron did in 2010, or Thatcher in 1979!..

      I hope Boris is not going to turn out to be a PM who cannot multi-task.

  12. Posted January 17, 2020 at 8:49 am | Permalink

    I see Boris has re-hired Mark Carney to advise him for the 2020 UN Climate Change Conference. What do you make of that John ?

    • Posted January 17, 2020 at 6:56 pm | Permalink

      Roy, it probably means that he’s scratching around for a job.

    • Posted January 17, 2020 at 9:23 pm | Permalink

      Roy, Peddling the CAGW hoax is just our money for Boris’s establish mates. He’s a chip off the old Cameron block.

    • Posted January 17, 2020 at 9:43 pm | Permalink

      Roy, I think you, or someone, have their wires crossed on this, Mark Carney has been appointed a special envoy by UN, advising them how the UN can finance its climate action goals.

  13. Posted January 17, 2020 at 8:56 am | Permalink

    Oh don’t worry…savings accounts are already dropping their interest rates.
    So no spending sprees any time soon..as witnessed by all the boarded up shops.
    Never mind 2%…inflation is rampant when one buys anything ( cost-push?). Maybe we should return to an RPI “shopping basket”which always included housing. A far more accurate picture? Train fare rises are still governed by it…wonder why?
    Too many low paid jobs and falling tax revenue can’t help.
    But honestly ..all these theories…and does anybody actually know what they are doing? Including “ Rock Star” governors.
    And it might help if economic reality were not mixed with green stuff and personal politics.

    • Posted January 17, 2020 at 6:59 pm | Permalink

      We could always blame the BBC. Why not ?

      They have been terrifying us for several years with the climate change and our over consumption.

      Perhaps the boarded up shops are because people really are listening to the BBC.

      Well. If Andy, Newmania and Martin IC can blame Brexit for boarded up shops then why can’t I be allowed to blame the BBC ?

  14. Posted January 17, 2020 at 9:16 am | Permalink

    No mention as to whether there is any pent up demand for borrowing nor whether banks and other lenders consider many loans and mortgages to be too risky.

  15. Posted January 17, 2020 at 9:42 am | Permalink

    Rightly or wrongly those that are in charge, are frightened of another run or crash of a major bank, so for whatever reason they are trying to ensure it does not happen again.

    Meanwhile the margins now between lending and borrowing have become massive.
    Thus we have a conundrum, do you borrow to expand your business, or is it better to simply pay off some debt to reduce your costs, and strengthen your own position against possible risk.
    Meanwhile savers are simply being screwed.

  16. Posted January 17, 2020 at 9:56 am | Permalink

    We should be looking at the money trapped in housing. Rather than having a rentier economy we should look at reducing rents so that tenants can spend more money. The richer _they_ are, the richer we are … the _they_ being the tenants not the landlords.

    • Posted January 17, 2020 at 6:56 pm | Permalink

      Can’t do this. They’ve valued the country by multiplying the whole housing stock against their estimated values and getting a figure from that.

      Then they say “Hey. Everything’s OK. No-one’s over leveraged as there is plenty of housing equity in the country.”

      Of course, this money can never be realised (to pay down existing debt) as to do so all at one time would cause a total collapse in those estimated values.

      Make housing more affordable then you create a debt crisis.

      • Posted January 18, 2020 at 10:32 am | Permalink

        I certainly see your point Anonymous but if this wealth transfer doesn’t begin soon we’re heading for a massive catastrophe, consider

        “Would you ever have thought that, at or near the peak of this cycle interest rates would be at the lowest level since the 1500s? Just imagine what happens to monetary policy in the next downturn.”
        –David @EconguyRosie
        Rosenberg

  17. Posted January 17, 2020 at 10:18 am | Permalink

    It may pay well the country if the Climate Change Elephant footprint reduction stuff is handled by the Government with massive incompetency and zero done.
    So ridiculous!
    Glasgow and Bristol are about to engage on a idealistic project so wasteful the mind boggles.
    But do continue to speculate on interest rate changes and ignore minds which have gone walkabout, flaring up

  18. Posted January 17, 2020 at 10:31 am | Permalink

    I can’t believe Boris has given Carney a job! Just as I was counting the days ….

    • Posted January 18, 2020 at 2:55 pm | Permalink

      I can,quite easily!

  19. Posted January 17, 2020 at 10:55 am | Permalink

    Hello Sir John,
    I note your comments about the need for the B of E to ease things. But what about us poor retired people who were getting 6% on safe bonds 10 years ago? Do we not matter?
    Returns on our savings are so small today we are being punished for being careful & saving small amounts throughout our lives to have a better retirement.
    Kind Regards
    Keith

  20. Posted January 17, 2020 at 10:58 am | Permalink

    Carney should step down asap as he has been Osborn’s and May’s puppet.

  21. Posted January 17, 2020 at 11:02 am | Permalink

    Of late we seem to have become overly concerned with the nuances of national and international banking. It is important but I do feel we are banging on a bit of late on what appears to ge one of your favourite subjects.

    For those who can remember, prohibition in the USA led to the rise of organised crime, and even funded a future presidential family. We on the other hand have not prohibited alcohol but have learned to live with those who are genetically disposed to suffer from it’s use.

    We have an enormous problem with the illegal drug industry in the UK. Too many of those involved are being murdered in turf wars, and no doubt many Mr Bigs are becoming very wealthy. I would not like to guess about it’s impact on the NHS. So let’s have a rational discussion on the subject.

    I would like to legalise the purchase and use of all so called recreational drugs. On pricing and clinical integrity of substances we could absolutely destroy the criminal businesses. Additionally government / the people could benefit from a vast tax take. It would take it off the street and possibly help in rehab for those who wish to kick their habits. Do not underestimate the use of drugs in the UK, cocaine is apparently detectable in all our fresh water rivers and sewage systems. Let’s hear what your readership think.

  22. Posted January 17, 2020 at 11:24 am | Permalink

    In banking crisis the BoE failed completely to spot the desperate over geared situation the banks were in particularly the ….. purchase of ABNamro by RBS. This despite the fact the government were underwriting the banks depositors as a last resort insurer so they clearly needed to. Then, post crash, they went from having been too relaxed to being far, far too restrictive. With the banks actively destroying perfectly good businesses and severely restricting and ripping off others.

    The FCA even now with their insane 40% and nearly 80% one size fits all overdrafts rates. Interesting these absurd rates are only for UK customers (not their overseas subsidiary ones). Special rip off treatment for the tax payers in the UK who rescued some of them but cheaper ones for those who did not. Well done the current idiots at the FCA with their damaging market interventions!

  23. Posted January 17, 2020 at 12:51 pm | Permalink

    Talking about wobbles….I am more concerned that the UK government is going to renege on its position reference the WA political declaration and the 12 month timetable to agree an FTA

    I can’t understand why the government is signing the WA when the PD schedule and context haven’t been agreed

    We all know in 11 months the Spanish are going to be asking questions about Gibraltar, the French about fishing, Germany the level playing field and the EU about extension and money

  24. Posted January 17, 2020 at 1:27 pm | Permalink

    There is a deeply flawed theory of macroeconomics out there that says that governments should balance their budgets and then the central bank can use interest rates to control the economy. So you balance your budget and if the economy is bad, like it is today, they lower interest rates and that causes the economy to do better and everything is fine. Everybody has a balanced budget and interest rates are at the appropriate level. Interest rates are like the thermostat on the wall: if it’s too cold you use interest rates to warm things up, and if it gets too hot, you use interest rates to cool things down. And as a follow up to that, they have quantitative easing, which is just a derivative of interest rate policy, it’s basically the same thing.

    What’s happened is, Japan’s tried that for 20 years and it hasn’t worked yet, and the Federal Reserve had been doing it for seven years and is was still fighting deflation until Trump broke every US government spending record with his $ trillion deficit. Japan has been fighting deflation for 20 years, and the European Union now for 9 years.

    If you ask any one of them, they say “well, it’s just going to take a little bit more time.” So there’s one theory that says you just balance your budgets and it’s just going to take more time, you just wait. However, , the reality is that this whole idea of using interest rates to control the economy, it just plain doesn’t work. Any real data graph will show the ideology is flawed.

    Governments are net payers of interest to the economy. Governments pay a lot of interest, and that’s income for the economy, and income is good for the economy, that’s money to spend by the private sector.Reducing interest income, reducing rates reduces income to the economy.

    When the central bank buys bonds and holds them, that’s called quantitative easing. The central bank holds those bonds, those savings accounts, instead of somebody in the economy, some entity in the economy. And so, the central bank’s earning the interest instead of the economy, and the central banks have started showing large profits, when all that interest would have been earned by the economy.

    What does the central bank do with the money? Well, they turn it back to the government, so to speak, but they don’t spend it. They just use it to reduce the debt. So, again, it’s a drain on income. What they call monetary policy, in the first instance drains a substantial amount of income from the real economy, and that should give you a first clue as to why this policy doesn’t work to make the economy better.

    What tends to happen is people move their savings into riskier assets which are more unstable than gilts.

    No theory I have seen stands under scrutiny that says either QE or cutting interest rates put more money into the economy. Unless the private sector takes on more debt. We have tried that and it failed in a big way in 2007.

    Banks were not very good at allocating either skills or real resources. Give me government any day of the week. At least we can vote them out if they do a bad job.

  25. Posted January 17, 2020 at 2:17 pm | Permalink

    I would prefer the MPC to be thinking about whether monetary policy still works at all.

    A rate cut soon would indeed seem wrong. I wonder afresh if the setting of interest rates should become the responsibility of an independent body.

  26. Posted January 17, 2020 at 2:44 pm | Permalink

    Even if the multiplier for HS2 is only 0.6,Keynes asserted the multiplier was always 1 or more,and the cost is 100 billion pounds,you are getting100 bn. ponds of investment for 40 billion pounds

  27. Posted January 17, 2020 at 3:08 pm | Permalink

    Given this clear history of incompetence, I wonder why the PM believes that the Governor of the BoE can add value in his forthcoming negotiations??

  28. Posted January 17, 2020 at 3:14 pm | Permalink

    I think nothing makes clearer the weakness of modern economies than the fact that interest rate changes of .25% can materially affect their condition. Sadly the appalling economic mismanagement by bankers and governments have so undermined the productive industries that the money printing drug no longer works. The can has been kicked down the road too often.

  29. Posted January 17, 2020 at 4:21 pm | Permalink

    Government tends to think it is exempt from economic laws. If the establishment accepted that the government should be run as a household, money would hold its value better, and fewer “wheeze projects” (HS2, Hinckley C, green subsidies) would see the light of day.

    It is precisely because the establishment admires MMT (the Magic Money Tree) – whilst denying it – and so think government money flow is endless, that we end up with our money worth 100 times less than 150 years ago, and government is so inefficient. Corbyn’s defeat is also the defeat of magic money – will it be heeded?

    • Posted January 18, 2020 at 7:11 pm | Permalink

      Indeed but politicians and bureaucrats just love wasting other people’s money, usually on things of little value, no value or even negative value to the tax payer. It make them think they are doing something. They do not really care what it is.

  30. Posted January 17, 2020 at 4:59 pm | Permalink

    Perhaps it’s just plain old incompetence, but those of a suspicious bent will no doubt wonder if it’s the ongoing Hammond-Carney approach of slugging the economy to make Brexit seem less attractive.

    Paranoid? Moi?

    Even if I am paranoid… that doesn’t mean they’re not out to get us.

  31. Posted January 18, 2020 at 9:03 am | Permalink

    And still the continuing obsession with growth. More consumption. More waste. More damage to the environment. More inflation. Less point in saving.

  32. Posted January 18, 2020 at 11:49 am | Permalink

    Slightly off topic – but the purpose is to assist the economy:

    A few years ago, as part of the EU ‘Harmonisation’ drive we reduced our mains electricity voltage from 240 down to 230 Volts. This did two things: it reduced our domestic distribution capacity and it increased the energy distribution losses; both these applying to the links from the local sub-station to the consumer. Given now the present fixation with going electric we need all the capacity and efficiency we can. So I propose we should revert to 240 volt operation. This would have the advantage that older equipment designed for 240 volt operation would operate correctly, whilst more recent equipment that used ‘Switched-mode power supplies’ would be unaffected.

    It is a simple and cheap way of saving resources.

  • 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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