The Chancellor yesterday used a Goldmans forecast to propose the Bank cut interest rates six times by the summer of next year. She says she believes in Bank independence, so this was a silly thing to say. She will argue she was quoting someone else but she chose to quote one of the forecasts expecting more cuts because she wanted to make it clear she wants rates down. She has been damaged by the surge in the ten tear rate to 4.9% recently, well above the short term one day spike in the ten year at 4.38% which she said crashed the economy in 2022. The knock on to mortgages is not helpful for a government wanting a 50% plus rise in housebuilding.
Too many MPs misunderstand Bank independence. It is only independent to fix the overnight base rate or MLR. It is otherwise wholly owned by the state, its Governor is appointed by the government and answers to them and to Parliament’s Treasury Committee, and it has a full indemnity against losses on its bonds. It needed Government approval for all its QE bond buying.
In recent years I have not called for it to lose its independence over rates, and I have not provided a running commentary on what rate it should set. I see the theory, that a panel of experts with a main task of keeping inflation to 2% should be able to do a better job than elected politicians wanting lower rates to help win an election.
We need, however, to see that the practice has not followed the theory. The Bank took us on a wild ride, debauching our money with ultra low rates and massive bond buying, driving inflation up to 11% or 5.5 times target. It then crashed the economy, selling bonds at huge losses and driving rates up. It blamed the inflation on war and energy, ignoring the fact that inflation was 3 times target before the war, and ignoring the way Japan, China and Switzerland kept inflation near 2% despite war and dear energy.The Bank has proved hopeless at predicting the inflation rate it is meant to control because its economic model is poor.
If the Chancellor really wants growth she needs to change Bank policy on bonds where they are not independent. The Bank has cut deep into fiscal policy with its losses . Meanwhile Mr Trump will try to lecture the Fed into lower rates, after they too have given the US a nasty inflation and are now restricting credit.
January 25, 2025
I think this country should start recruiting pensioners as we seem to have a lot more intelligence in running things than those we have in power. Rachel Reeves could do well to ask you to apply for a job tutoring her on finance for a start and I could help as I was a bank clerk in the 1960s when we did everything and customer service was valued. I also went on to be a Civil Service Auditor so I could make the books balance for her.
January 25, 2025
Sir John
“Too many MPs misunderstand Bank independence. It is only independent to fix the overnight base rate or MLR. It is otherwise wholly owned by the state, its Governor is appointed by the government and answers to them and to Parliament’s Treasury Committee, and it has a full indemnity against losses on its bonds”
There was a time in history that it was fully Independent and was part of the UK’s what we now call Privat sector meaning it had independent shareholders, but it was Nationalised and all the time it doesn’t pay its own way it stays State owned and its outcomes are owned and managed by the Chancellor and Government of the day
Needs repeating over and over. It is not Independent, it is not as it is not a Private Company
Its a bit like the Government suggesting they are spending ‘their’ money – its a myth it taxpayers money
January 25, 2025
By saying what she did,Rachel Reeves makes it clear that she has little idea of how things work. She is showing clear signs of desperation, now telling us we can learn from Trump’s ‘Positivity’, having previously done all she can to join with her leader to tell us our country is a basket case. If she wants us to be positive, she should start by cancelling most of the provisions of her recent budget; until she does so it is impossible to be positive about pretty well anything.
January 26, 2025
Agreed. It’s astounding that she thinks telling people to be positive when they have done everything they possibly can to destroy confidence is going to have the desired effect.
For a start, try telling owners of family farms that they should “be positive” when all they can see coming down the track is an Inheritance Tax which is going to destroy the farms which have been in their family for generations.
January 25, 2025
Exactly.
Reeves is alas daft as a brush (rather like the BoE, Carney and Bailey. If she that was a budget for growth I am a banana as Ian Hislop might have said.
A good rule is that any organisation that feels the need to claim it is “independent” never is.
An example. The MHRA is the independent licensing and regulatory body for the supply and use of medicines and medical devices. The MHRA will only be approve a vaccine for supply in the UK if the expected standards of safety, quality and efficacy are met. Or so they claim.
We do receive funding from the Bill and Melinda Gates Foundation as well as other sources outside government such as WHO. This funding mainly supports work to strengthen regulatory systems in other countries.
But from a freedom of information request. The majority of our income comes from the pharmaceutical industry through fees. For example, all Marketing Authorisation applicants have to pay a fee. The licensing of medicines is an independent, scientific process which is overseen by the Commission on Human Medicines (CHM).
January 25, 2025
They there “quite independently” I assume thought it was a good plan to push several jabs into children and people who had had covid already who clearly had not need of them even had they been remotely safe and effective! They also seemed very happy with huge batch safely variations, huge numbers of vaccine injuries per 10,000 jabs and with different manufacturing methods for the roll out than for the “vaccines” used in the trials.
Well done the “independent” MHRA do we have a criminal investigation yet or is this two tier justice in a similar way to the rape gangs?
January 25, 2025
Is she qualified for the job or it may be better to say does she understand the job?
In my life many have excellent degrees and experience and still don’t actually get what they learn.
January 25, 2025
I totally agree with Sir John. I am very concerned that the Bank has at times of crucial national importance been anything but independent (reference the absurd levels of money supply long after lockdowns ended which turbo charged demand well beyond the capacity of the economy). Any second year economics undergraduate would have known that yet the Bank breached the well established understanding that aggregate money supply needs to equal GDP or inflation will set in. The Bank knows this inside-out yet they ignored it as they adhered to other external influences. The Bank is therefore not independent from the British government and worse still it is not independent from global group think either. It needs to have people at the top who are both intelligent and responsible. It has plenty of the former but is seriously lacking with the latter.
January 25, 2025
Rachel is a busted flush.
We receive opinions and errors from her but need only independence from her.
January 26, 2025
It is similar to the arguement over nationalisation or privatisation. All we ask is for something that benefits nation, business and individual more frequently than the opposite.
January 26, 2025
Agreed. It’s astounding that she thinks telling people to be positive when they have done everything they possibly can to destroy confidence is going to have the desired effect.
For a start, try telling owners of family farms that they should “be positive” when all they can see coming down the track is an Inheritance Tax which is going to destroy the farms which have been in their family for generations.
January 26, 2025
All of this demonstrates that if those in authority have an agenda, never mind what they say, it will override good practice.
We’ve seen it too many times recently, where lip-service was paid to ideas about making the economy productive, while the actions of government di the complete opposite.
This used to be called double-speak. It is actually deceit of the highest order.
January 26, 2025
We need to rethink this from the beginning. The chance that we will join the euro is now very greatly reduced and that removes the principal historic reason for Bank of England independence in its present form. I suggest that whatever the legal arrangements they should ensure that the Bank is tasked with promoting economic growth at least as much as controlling retail price inflation, closer to the position with the US Federal Reserve. So I do not accept that the correct response to imported inflation is to put up interest rates and slow down our economy.
This is an interesting review:
https://www.lse.ac.uk/iga/assets/documents/research-and-publications/Rockefeller-Project/Paul-Wachtel-Mario-Blejer-A-fresh-look-at-central-bank-independence.pdf
“A Fresh Look at Central Bank Independence”
Reply As an MP I persuaded Rishi Sunak to consult over a new econ9mic control framework. I proposed twin targets of 2% growth and 2% inflation binding on both Treasury and Bank. Treasury officials persuaded him to adopt a modified Maastricht debt and deficit control based on 5 year out forecasts of OBR which are nearly always going to be wrong.