The pound takes a pounding from the Bank of England

The Bank’s gloomy words ,as it justifies its change of tack on interest rates, had a predictable impact this morning on the value of the pound. Making sensible and credible forecasts is one thing. Overdoing the gloom is another which may prove self fulfilling.

How much more damage do they wish to do? Don’t they want to sell more government bonds to foreigners?

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16 Comments

  1. Patrick
    Posted November 12, 2008 at 6:14 pm | Permalink

    I suspect that King's tolerance of Brown must be at breaking point. He's all but saying out loud that the government must cut taxes to stimulate growth and cut spending to keep borrowing manageable.

    The Bank of England has lost most of its credibility on King's watch but most of that is due to Brown and his disastrous hobbling of the Bank. How truly awful it must be for King to work under Brown. If I were King I'd resign – and with a farewell speech on Briwn to make Howe's knife in Thatcher's back look like a farewell kiss.

    Our whole economy and standard of living is at peril, we're in a very deep hole and comrade Brown is digging harder than ever.

    Much better for him to ruin the country than to lose an election. Much better to destroy the economy than to to turn off the gravy tap for his client state.

  2. Kit
    Posted November 12, 2008 at 6:55 pm | Permalink

    Is the BoE is trying to prevent the governments spending spree?

  3. Tony Makara
    Posted November 12, 2008 at 6:59 pm | Permalink

    Mr King admitted today that a falling Pound could lead to inflation, and of course he is dead right. How much is Made-in-Britain today and how much is imported? Next time people are out shopping they should specifically try to buy British and they will find its close to impossible to find British goods in the shops.

    When I expressed concern last year that Sterling was overvalued and was due a big correction I was roundly mocked by free-traders when I predicted severe levels of imported inflation, now it gives me no satisfaction at all to see this scenario coming to fruition. It is no coincidence at all that the cost of food staples has risen by over 15% at the same time that Sterling has devalued, and there is more, much more to come.

    The MPC must take the blame for this, their principle policy has been to keep Sterling overvalued to support financial services, at the expense of the rest of the economy. Now people are paying the price with rampant unemployment and imported inflation. Now rates are being slashed as a panic measure and Sterling is teetering on the edge of freefall. We needed a balanced and stable currency but now, thanks to the MPC and politicial imput from the Labour government we have the most fragile of all the major currencies.

    • Adam
      Posted November 13, 2008 at 11:35 pm | Permalink

      Real world inflation example: HP Sauce (in glass bottles, not the awful plastic ones) imported from the Netherlands, now 89p in my local Tesco, up from around 75p only a few weeks ago.

      (Sorry, yes, I posted this down below – I intended it as a reply to this post; I forgot I can reply to individual posts!)

  4. Brian Tomkinson
    Posted November 12, 2008 at 9:12 pm | Permalink

    It is incredible listening to the governor saying how little he and the Bank seemed to have realised about what was happening to the economy, which had been fairly obvious to many of us since the Northern Rock debacle over one year ago. Having failed to see the recession coming he now seems to be doing his best to spread gloom and despondency. The pound drops every time he opens his mouth. He and Brown seem to be trying to completely ruin our currency and economy.

  5. mikestallard
    Posted November 12, 2008 at 9:24 pm | Permalink

    The attitude of the government, as it comes across on the media, is that everything in the garden is lovely just at the moment. True, there is a problem "out there", but it has precious little to do with us. Look at the figures. They are just fine. Stop worrying. A little more borrowing won't hurt!
    I read your speech just now. Of course, you are right. But the other people just do not seem to get it.

  6. Ken Adams
    Posted November 12, 2008 at 9:59 pm | Permalink

    Some say they want to adopt the Euro?

  7. Simon
    Posted November 12, 2008 at 11:18 pm | Permalink

    I was talking to some friends recently and the conversation turned to what would happen if people lost confidence in money. They have already lost confidence in stocks, property and commodities so what would happen if they lose faith in money? Imagine taking your car in for repair and the mechanic said "I can fix it, but I don't want money. Have you got a couple of sacks of potatoes or something?". I wonder if we could see such things happening.

    • Stuart Fairney
      Posted November 13, 2008 at 10:25 am | Permalink

      It is unlikely they would lose confidence in all money. If the pound did go 'Mugabe' then we would trade in dollars or Yuan or something

  8. E Justice
    Posted November 12, 2008 at 11:52 pm | Permalink

    Off topic Mr. Redwood,the votes for the "new regional select committees" for England,254-220 , who was the deciding 34? it wouldn't be the Scots ,Welsh and N Irish by any chance?
    Reply Could be. We did win one vote, to stop them paying the Chairmen extra!

  9. Johnny Norfolk
    Posted November 13, 2008 at 1:17 am | Permalink

    With Brown & co looking over his shoulder, no wonder he is so gloomy.

  10. Trevor Wright
    Posted November 13, 2008 at 2:38 am | Permalink

    Seems clear to me that the end game is to join the Euro. Brown knew we would never stand for joining as a policy decision, which is why he will take advantage of the present situation to join on a "disaster recovery" basis.

    I do wish you chaps would get your act together and get rid of this clown troupe who are running the country.

  11. Stuart Fairney
    Posted November 13, 2008 at 10:30 am | Permalink

    Euro membership maybe a proposed or desired endgame but it seems to me the MPC's 1.5% cut in rates shows how nonsensical this would be. If the rate cut was important to us, it is surely self-evident that such direct, immediate unilateral action would not be possible if we were in the Euro. Nor am I sure that throwing in our lot with the near to bankrupt Spain or Italy is exactly the right thing to be doing when various Euro governments are offering different rates on their bonds!!

    Though I grant you, it might well be the 'plan'

  12. Paul Roberts
    Posted November 13, 2008 at 5:52 pm | Permalink

    Where are all those patriots now who glorified the 'old pound' and campained that Britain would lose its identity if we took up the Euro. Living in Spain spending Euros! (I bet)

    The only way out is to see it freefall or join Euro asap! An alternative is to wait a year until the British economy pulls out of it, but how much damage will it take until then!

    • Stuart Fairney
      Posted November 14, 2008 at 7:24 am | Permalink

      Or alternatively, we could not run such enormous budget deficits, actually begin to repay national debt, employ fewer people in the non-productive state sector, stop pointless bailouts of failing companies, lower taxes, make the UK attractive again to investors and stop the flight of companies decamping to lower tax Ireland and let Sterling become a valued commodity again.

      Oh and you might want to cast an eye towards the rules on Euro membership with regard to annual borrowing and national debt. you will find we are in violation of both at the moment. That and the fact we maybe seeing the death knell of the Euro with different governments effectively offering different rates of interest on their bonds, mean joining thge Euro may not be quite tha panacea you imagine

  13. Adam
    Posted November 13, 2008 at 11:32 pm | Permalink

    Real world inflation example: HP Sauce (in glass bottles, not the awful plastic ones) imported from the Netherlands, now 89p in my local Tesco, up from around 75p only a few weeks ago.

  • 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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