The Monetary Policy Committee of the Bank of England (MPC) failed to control inflation on the way up, allowing interest rates that were too low for too long. The Uk made its own contribution to the world credit bubble, and has its own high inflation as a result. Expect more bad figures today.
Now the MPC is determined to get it wrong the other way, keeping rates far too high for too long. They can’t stop inflation rising this year by keeping rates up – they caused the inflation by errors in previous years. What they can do is to start ameliorating the downturn. Instead, the MPC seem determined to make it as bad as possible.
In recent weeks we have seen
Oil prices fall by one third!
House prices continue to fall – now down by more than a tenth in a year
Commercial property prices fall by one fifth in a year
Share prices falls by more than one quarter from peaks
Northern Rock and Lehman have crashed
Some other banks and financial institutions are in a difficult situaiton, strapped for cash
How much more deflation will it take before the MPC can get the message? INTEREST RATES ARE FAR TOO HIGH. THE ECONOMY IS BEING THROTTLED.
The MPC should wake up, meet in emergency session, and announce a reduction in interest rates to 3% in the first instance.
The markets are in a very fragile state. The US has cut interest rates to 2% only, and may take them down further. Why is the UK out to lunch in the middle of this nasty financial crisis? Why are they always looking backwards to past mistakes, instead of seeing that inflaiton will fall sharply next year, along with economic activity.
They seem to want more people to lose their jobs, more people to lose their homes, and more people to lose their businesses. Can someone tell me why?
At the same time the UK governemnt should publish a new and sensible forecast for its own spending and borrowing this year and next, and take action to cotnrol its ballooning deficit.