Time to put up interest rates


There have been lots of bids and deals.  Wages are picking up. Consumer spending is rising. House prices have been going up. The Bank should of course want to keep this recovery going, but it is time to start raising interest rates.

I have talked before about the very poor returns for savers. I have explained how the ultra low official interest rates have not been fully reflected in borrowing costs for companies or mortgage holders. I favoured mending the commercial banks more quickly to avoid the need to create so much new money and buy government bonds with it. Now the Bank is sitting on so much government debt, it needs to ensure that as the commercial banks get stronger it does not allow too much of this created money to  find its way into new credit. So far wider money growth has not been excessive, and the tighter regulation of commercial banks has avoided inflation becoming a problem. We should now see faster progress in mending the weaker banks, as profits are retained, allowing more credit to be advanced.

In these conditions, making a start in getting rates up would send a signal to lenders and borrowers alike. It would begin to make saving more worthwhile. A balanced economy will need higher levels of saving and investment.

It may also strengthen the pound a bit against the Euro. As we import so much more than we export from the Euro area this would be helpful overall to our balance of payments, making the imports cheaper. Many of our exports are not that price sensitive, being based on good technology or service quality. A rising or stable currency prevents imported price inflation, the problem which helped cut living standards at the end of the last decade.

I see the Monetary Policy Committee of the Bank is moving towards action. It is a long road to a world where saving is more worthwhile,and the journey will start with  modest steps which will not undermine the recovery. It is important that this cycle the Bank gets it right. In the last mega cycle, the “NO more boom and bust cycle”, I was permanently an opponent of what the Bank was doing.

Between 2004 and 2007 I wanted them to have higher interest rates, and to control bank credit by tougher requirements for cash and capital. I included this in the Economic Policy Review I wrote for the official Opposition in Parliament.  In 2008-9 I was an outspoken critic of the Bank’s failure to put enough liquidity into the markets to avoid major disasters at several leading banks. In 2009-10 I was against the purchase of large shareholdings in RBS and Lloyds, favouring short term loans against security to prop up the important parts of their business which mattered to the solvency of the whole system whilst they sold assets and businesses to raise cash  and the shareholders and bondholders took the hit for the losses. I was an opponent of the ABN Amro/RBS merger, and of the Lloyds/HBPOS merger. Let’s hope in this cycle the Bank acts ahead of problems and shows it has developed an understanding of the cycle.



  1. margaret brandreth-j
    May 24, 2014

    How can the smaller banks retain profit and simultaneously extend credit?
    The TBS /LLoyds split is also politically sensitive between different regions;transactions not being allowed between these opposing areas.
    Will interest rates improve in JULY would you predict?

    A bank can lend more whilst making profits, which can be credited to the bank’s reserves rather than paid out as dividends.

    1. margaret brandreth-j
      May 24, 2014

      The TSB i.e.

  2. Lifelogic
    May 24, 2014

    “very poor returns for savers” well in fact (with most bank deposits) clearly negative real returns but then further taxed by Osborne to make then even more negative.

    You have as usual been right on all the issues you list above, but then most of these decisions should have been obvious to sensible/competent people/regulators. So why have so many abysmal decisions been made from Majors ERM, Bliar’s wars, Browns saving the World onwards. Why are the incompetent donkeys always put in charge?

    Base rates are surely being kept low just to try to win an election in May 15. I suspect it will not work. Having said that bank margins are still too high and lending outside certain areas still quite restrictive. The government decision to rescue RBS/Natwest but then let them treat many of their sound customer appallingly (calling back sound loan or charging a fortune all while under government ownership) was hugely misguided and damaging to jobs & growth. The poorly designed over regulation of banks now and the new slotting/capital and regulated mortgage rules are also often damaging. We need higher base rates, lower margins and far more sensible and fewer regulations.

    The is a lack of competition in banking. The bank are able to pay .3% or something on deposits (unsecured) then lend it out at say five over base to customers more credit worthy than the bank secured. We need more competition to cut out this exploitation of customers in the mean time cut them out where you can.

    We need higher base rates, cheaper energy, lower taxes, less endless government waste, selective immigration, no expensive (by Cameron religion) energy, far fewer and far better designed regulations and no enforced “equality”.

    Cameron & “morally repugnant” Osborne alas are still wrong on most issues. Cameron types think your money and earning are really theirs to steal, tax and waste on green tosh, overseas aid, HS2, blocking the road, benefit and low wage tourism, augmenting the feckless and endless other drivel. There are few more moral things one can do than to legally reduce ones tax bill and thus stop Cameron types pissing it down the drain.

    The GAAR (General anti-avoidance rule) so you owe whatever tax HMRC says you owe is a hugely damaging outrage.

    1. Lifelogic
      May 24, 2014

      In short why are JR types (with a record of being generally proven right) on the back benches while the wrong on nearly every issue Major, Cameron, Blair, Brown, Clark, Davey, Clegg types are left in charge?

      1. JoeSoap
        May 24, 2014

        Because you need people in charge with a balanced outlook on life, rather than those driven by blind ambition. We can all see that Cameron, Blair, Clark, Davey and Clegg are seduced by the EU, and its opportunities and ambitions for them. For Brown his ambition seemed to be slightly more open and honest (help the so-called “poor”) but if anything was even more misguided.

        Of the ones you have listed we can say none of them have ever turned £1 into £2 by hard and clever work. They just know how to print and spend it.

        Rather we need some entrepreneur/business types in charge, our host included.

        1. Lifelogic
          May 24, 2014

          The problem with Cameron is not blind ambition but a duff compass. First he gave away the last election with Clegg’s TV billing, his EU ratting and his general green crap, big government, fake equality, nicey nicey, Libdem/modernisers agenda. Now he want to bury the party completely and for ever. Even now he thinks open doors (to anyone from within the EU) is a good plan and that the UK should be subsumed into the actively anti-democratic EU. He even thinks we should discriminate blatantly against men for head of the BBC trust and employs people like David Laws, Maria Miller, Lord Patten, Greg Clark, Ken Clark, and several token woman and token people of religion or colour totally regardless of ability or merit …… He is simply genetically not a Tory, nor even sensible/rational. Just as Ted Heath, John Major, Tim Yeo, John Gummer, and about half of the rest were never Tories. We already have the Libdems, the Greens and Labour with silly views like theirs – how may parties do these dangerous & loopy people need?

          Get rid of them and rescue the party, a deal with UKIP is essential to win. Even then with Cameron lacking any credibility it will be very hard to rescue it now.

          1. Hope
            May 24, 2014

            Cameron has demonstrated he has nothing to offer the aspiration all working class, sacs, pensioners or those who take personal responsibility. He personifies New Labour.

            Yesterday Cameron claimed he did not do deals or pacts with other parties. What a stupid remark. How did he get into coalition with the Lib Dems? This from a political coward who rather than go it alone to see if the public liked what he had to offer went into coalition with the LibDems!

            Could you trust a person who says utter rubbish like this when he is in government with another party? Did he not do a deal with the ultr uni ironist not stand against each other? A person who let the Lib Dems have 50 percent of say in government with 9 percent of the seats! What a negotiator!

          2. Hope
            May 24, 2014

            And it was women in the BBC who inappropriately acted in stark contravention of their legal duty to remain impartial per the Royal Charter with their extreme left wing tweets. Jasmine Lawrence should not have been suspended temporarily from the election news, she should have been suspended from the organisation for her untenable views pending a proper investigation. Her boss’s message to staff makes it sound BBC employees should be more discreet not that they should not make such comments. BBC needs to privatised or severely cut back to its original remit and purpose. Here is no commercial accountability therefore no accountability.

          3. Lifelogic
            May 25, 2014

            Indeed the problem is that it is not just Jamine Lawence has these view but nearly everyone at the BBC seems to have them. Nearly all interviews with UKIP take this racist position as their starting point for the interview. She does not even have the excuse of being young. The place is full of dim, lefty, second rate, green crap, pro EU, art graduates with magic government money tree/guardian views of economics and often with a large chip on their shoulder too.


          4. Lindsay McDougall
            May 26, 2014

            The alternative approach is to harden the Conservative negotiating stance over the coming months so as to appeal to UKIP voters. I wouldn’t worry about Tory Wets jumping ship – good riddance.

            This Autumn is the latest time that the Conservative Party could change its leader before the next General Election. That gives John Redwood and his fellow Conservative Eurosceptics 5 months to engage persistently and constructively with the Prime Minister. The Prime Minister isn’t stupid; he will get the message.

        2. Jagman 84
          May 24, 2014

          They certainly do know how to turn £1 into £2. Unfortunately it is in terms of debt.

          1. Lifelogic
            May 24, 2014

            Or in claiming expenses or an over generous state pension perhaps.

        3. Lifelogic
          May 24, 2014

          Now we have IHT ratter morally repugnant, GARR tax at random introducing, piss taxes down the drain, George Osborne saying he “respects” Nigel Farage but he does not have “answers to the country’s future”.

          He then told the BBC the Conservatives had to listen to the “anger and anxiety” of those who voted for UKIP in Thursday’s local elections. The anger come mainly for being kicked in the teeth by serial dishonest, ratters Cameron and Osborne perhaps.

          Which of their policies does he not like exactly? He did not say and was not asked? Was it:-
          Cheap non green crap energy?
          Selective, intelligent, immigration of people we actually need?
          Free trade with the world?
          A pro growth, pro jobs and low tax agenda?
          No longer being shackled to the dead hand of the anti-democratic, expensive, corrupt, top down, idiotic, anti business & socialist EUSSR?

          Which is it Osborne? These should all be Tory policies if it were not led by two patent, disingenuous, contemptible, Libdem think ratters? How is your IHT promise coming on Osborne have you forgotten about it?

          1. Iain Gill
            May 24, 2014

            I don’t have as much of a problem with IHT as with selling old folks homes to pay for their care. While large numbers of people avoid this additional tax by putting the house in a trust fund, or in relatives names, live in Scotland, and so on, and only the genuine salt of the earth types are being abused with this regime. This is as close to highway robbery as the state gets, done when people are at their most vulnerable.

    2. petermartin2001
      May 25, 2014

      ” The bank are able to pay .3% or something on deposits (unsecured) then lend it out at say five over base to customers more credit worthy than the bank secured.”

      Except, as explained by the BoE themselves: “Money creation in practice differs from some popular misconceptions. Banks do not act simply
      as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits.”


  3. JoeSoap
    May 24, 2014

    It would be interesting to hear from you what effect you think say a 0.25% base rate rise would have on our annual debt payments, as new debt is issued by the government, and will this decrease the scope for pre-election tax cuts?

    Reply Raising official short rates in good time may not increase longer term rates by the same amount, as these longer term rates at which the government borrows have risen a bit already.

  4. Iain Gill
    May 24, 2014

    Great a post I can support. Well said.
    Why don’t we get ready for the inevitable downturn in house prices too? Do something radical like allowing any normal sized family homes facing foreclosure to be turned into social housing and let the current residents live in them. Don’t support the crazy house prices, don’t give money away (the state gets the asset in this case) but do support families who need somewhere to live. Don’t forget the private tenants, what about some radical action there too, say bring in “right to buy” for private tenants too! And so on. Or maybe just maybe take a decision to get the state out of manipulating the housing market and remove all the tweaks from the system?
    Other stuff we need you to say:
    1 Tax work visa holders at least as much as Brtis. So no more first year in the country free of employers and employees national insurance. No more tax free sums as supposed expenses for things Brits could not claim as expenses when working away from home within the UK. Tax allowance to be pro rata with the proportion of the tax year the worker is allowed to work in the UK, or is actually here in the UK, whichever is shorter. And so on.
    2 Stop issuing intra company transfer visas to organisations with more than 100 staff and more than 10 % of their UK headcount holding such visas (or originally entered the UK on such a visa).
    3 Stop issuing intra company transfer visas for occupations where there is already an oversupply of Brits in the workforce.
    4 Enforce the rules in immigration, so radical action to make sure intra company transfer visas are only issued where the worker genuinely does have unique knowledge of the way that organisation does things, and not for generic cheap IT staff.
    5 No free healthcare for work visa holders families, or free schooling for their children, if they come from countries which do not provide reciprocal perks to Brits working in their country. Make them pay medical insurance and schooling costs like Brits abroad have to.
    6 Start enforcing the equality legislation where there is blatant anti white working class discrimination, and reinforce the rules too if need be.
    7 More resources to be put into policing breaches of the work visa system rules, paid for by increased tax on work visa holders.
    8 Stop issuing work visas to nationals from countries which make it very hard for Brits to work in their country. Much harder international negotiation with other countries on this.
    And so on
    Good luck

    1. Gary
      May 24, 2014

      I presume that you believe in free markets?

      You cannot have free markets without the free movement of labour. If there are no jobs in Yorkshire people move to London. If there are no jobs in London people move to Brussels, or New York, or China. A single currency is better than a myriad floating currencies. Free movement of goods and services across borders is better than tarrifs, duties and protections.

      The euroskeptics are economic illiterates.

      Reply Countries do not usually allow free movement of all people wishing to come to settle, as each one coming requires schools/hospitals/roads etc and the richer and more attractive countries therefore have to ration places in their eocnomies.

      1. Gary
        May 24, 2014

        Job rationing should done by companies in the market. If jobs are causing govt welfare to be impacted , then get govt welfare out of the way. That would ensure that people would only come to genuinely compete for jobs and not to live off welfare. As usual, govt is the problem but the people are being told the problem is the single market.

        It confirms my original point

        1. Lifelogic
          May 24, 2014

          Well to a point but would you going to have a UK with starving families and beggars on every street corner?

          You cannot have UK benefits, schools, healthcare and open borders.

          1. APL
            May 24, 2014

            Lifelogic: “You cannot have UK benefits, schools, healthcare and open borders.”

            Neither can you have sane planning for infrastructure if you have grounds to project your population and thus demand for infrastructure.

            One thing we know right now, HS2 will be an economic disaster.

          2. Gary
            May 24, 2014

            Absolutely. People flock to the UK because they can most easily get welfare here. If the EU was the welfare soft touch the Euroskeptics tell us it is , immigrants would distribute themselves around the EU. They don’t, they head straight here. It seems that this is our problem and we are blaming the EU.

      2. Jennifer A
        May 24, 2014

        Reply to reply: Which Britain most certainly hasn’t been doing. (Rationing that is)

        Gary supports our taxpayer subsidised ‘free’ movement of labour market.

        One way or another each low skilled imported worker is massively subsidised by our Government.

        It is not a ‘free’ market. It is precisely the opposite. Wanted by a Tory supporting (tax avoiding) commercial elite for ‘cheap’ labour and wanted by a Labour elite which needs to import a new poor class to justify its existence.

        It also covers for the education failures of both parties which scrapped grammar schools and selective education but kept it for their own children.

        1. Jennifer A
          May 24, 2014

          It is a highly uncompetitive system which is built on debt.

          This should be anathema to Tories.

          1. APL
            May 24, 2014

            Jenifer A: “This should be anathema to Tories.”

            There are no ‘Tories’.

            There is an organisation that goes by the name ‘Conservative’, but it just implements the instructions from its master in Brusberg, while going through the motions of appealing to its electorate.

            The whole thing is a corrupt farce.

        2. Gary
          May 24, 2014

          Where do i support taxpayer free movement of labour, an oxymoron by the way ?

          I support free competition for jobs regardless of borders by those best qualified for the job. Yes, labour is a commodity and it bids for the available jobs, wherever the jobs are. The jobs are rationed by the limited jobs companies have on offer, not by govt decree. Also, the free market is not devoid of rules. Contract and property ownership laws are the cornerstone of the free market.

          Child slavery has no place in a free market, because a free market is not a market in depravity, not least because civilized people wont tolerate it and may boycott those companies if they exist, just as goods from apartheid South Africa were boycotted by ordinary people.

          1. Iain Gill
            May 24, 2014

            Intra Company Transfer visas are used by the big outsourcers to bring large numbers of non EC nationals in to work in jobs where there is already an oversupply of skilled Brits able to do those jobs. They are subcontracted into other organisations for less than a Brit can afford to work for. They are given large tax perks to allow them to further undercut Brits in the jobs market. And bringing those non EC nationals in also removes the incentive for companies here to invest in training Brits. It also discourages British students from studying relevant subjects when they can see all the junior jobs are going to foreign nationals. They are coming from countries where it is much harder for Brits to go work than it is for them to come here. They are given full healthcare for their family from day one regardless of any pre-existing conditions which incentivises many to come here timed precisely when their family member needs an expensive operation for the NHS to pick up the tab. They get free schooling for their children which British families in their country do not. Its not so much whether individually they are net contributors (which they as a whole are not if the sums were done correctly) it’s the fact that they are simply cheap low quality staff who are used to depress the wages of everyone else. This is not even free market in jobs, because in a proper free market Brits would win because the quality of their output is so much higher, and they would have access to the jobs in the country these workers are coming from. Brits have expenses many of these workers do not. These workers are the top of an iceberg helped by a big cheap set of workers back in their home country, another unfair advantage British workers with costs of living here to support cannot be expected to compete with. To say nothing of the wide ranging laws the outsourcing organisations are routinely breaking which are hardly policed at all… data protection, employment, immigration, intellectual property protection, equality, tax, etc. And large numbers of these workers end up with indefinite leave to remain here and British citizenship simply for working here a while, adding to the pool of workers here further depressing wages, and the massive immigration problem which leads to people voting UKIP. These outsourcing organisations arelittle more than modern slave ship captains, and just because slave ship captains do well in a “free market” doesn’t mean decent people should support them, they abuse their workforce massively.

          2. Jennifer A
            May 25, 2014


            You said that Euroskeptics (Dr Redwood is one) are economic illiterates. Keep it up. This type of know-it-all condescension is what we UKIP voters are sick of. The more rude you are to us then the more of us there will be.

            Our welfare system is, effectively, the taxpayer funded subsidy of ‘cheap’ labour. It puts a floor under our living standards where our people must compete for jobs in their own country with the rest of the world.

            Without welfare there would be rioting.

            In later comments you seem to show some understanding of this situation and suggest that we should get welfare out of the way.

            At least here we can say that the Eurosceptics are not the ones suggesting anti welfarism. In fact we are not against welfare as it was originally intended but not as it stands and being part of the EU means that we cannot reform it. Hence we are Eurosceptics – and we are perfectly literate.

          3. Jennifer A
            May 25, 2014

            Gary said:

            ” However, the single market with a single currency, free movement of labour and free borders is far better than economic isolation

            Those voting for UKIP have just voted for a closed , isolated market.”

            Now that’s scare mongering as well as economic illiteracy.

            There is a whole world to trade with (including Europe) We don’t have to give up our freedoms or national identity to do it – in fact our national identity is what is keeping us afloat now. An Englishman’s word is his bond and all that.

            (How long before the world realises how much we’ve changed and there is a run on our stock ?)

            Doubtless you think that the European single currency is a good idea too, Gary. And that we’d be isolated without it. Again it is our autonomy from things EU that are saving us – our closeness to the EU is the problem not the solution.

            In fact it is our own Europhile politicians using Europe as a cover for their liberalist ideals which is the true problem.

            Above all else UKIP want us to have a referendum.

            A say.

            A real choice.*

            Whatever your beliefs, Gary, don’t you think people should at least be allowed a say on what amounts to huge and unprecedented demographic changes ?

            * ‘Choice’ – a much vaunted Conservative Party promise on which they justified privatisation in the ’90s.

            A pity we don’t have ‘choice’ in mainstream party politics. And without very serious action from Mr Cameron before 2015 I don’t believe a world of his referendum pledge.

      3. forthurst
        May 24, 2014

        “You cannot have free markets without the free movement of labour.”

        The silliest comment I have read on this site for some time. Furthermore, if you wish to go down the line of construing humanity as a commodity, that would be the best argument yet for restricting arrivals, at the very minimum, to those that create net added value to the country after all expenses have been paid over at least one lifetime. Another way of looking at humanity is as a (claim on resources? ed), in which case a clear argument exists for improving the quality of education and training back at least to what it was fifty years ago rather than importing those who have been better trained by default.

        1. Leslie Singleton
          May 24, 2014

          forthurst–Agreed is a crazy comment and as I have written elsewhere how come there is no free movement (far from it in fact) among America, Canada and Mexico? Changing gear, I have just tried unsuccessfully three times to listen to the Saturday edition of Any Questions. Each time I had to switch off because I couldn’t stand listening to it. The chances of any or at least most of those who govern us paying heed as they keep saying they are doing is nil based on this programme all of which (at least that I listened to) was just self justification without a scintilla of change.

          1. Leslie Singleton
            May 24, 2014

            Postscript–I should just add (so that I do not insult someone I do not intend to!) that the two people I heard were Sir Malcolm Bruce and (presumably) a Conservative woman MP. The former was an expert on begging the question on the EU and also said something like how good it was that we are all mongrels now and the latter just spoke exculpatory twaddle in general but specifically how wonderful it is that the UK is, if I heard right, the first to reach target in terms of percentage of GDP given away as Overseas Aid.

            reply Justine Greening, Overseas Development Secretary

          2. Lifelogic
            May 24, 2014

            Justine is pleasant enough but rather a toe the line, career dope. Certainly far preferable to the most unpleasant and nasty Angela Eagle throwing her vile abuse around (Yet another Oxford PPE I note). Do they do a course on vile abuse, endless interrupting and its use to shut down debate on the PPE course? They much have time to as so few come out understanding real economics.

            Malcolm Bruce was not far behind in his unpleasantness.

        2. Gary
          May 24, 2014

          “the best argument yet for restricting arrivals, at the very minimum, to those that create net added value to the country after all expenses have been paid”

          I agree with this. This is just another way of saying what i said above You compete for jobs across borders, and presumably the candidate chosen will add value , otherwise the company would not fill the role.

          1. Iain Gill
            May 24, 2014

            not when there are already large numbers of British workers with those skills, to let in more non EC nationals simply depresses the wages of everyone and displaces Brits from the workforce.

          2. forthurst
            May 24, 2014

            “You compete for jobs across borders, and presumably the candidate chosen will add value , otherwise the company would not fill the role.”

            I do not live in a company, I live in a country; it is essential that government policy is predicated on what is good for the country which may not be what is most profitable for some companies.

          3. Gary
            May 24, 2014

            “I do not live in a company, I live in a country; it is essential that government policy is predicated on what is good for the country which may not be what is most profitable for some companies.” – forthurst

            “not when there are already large numbers of British workers with those skills, to let in more non EC nationals simply depresses the wages of everyone and displaces Brits from the workforce.” – Iain Gill

            Then those companies will leave the country , go where the labour is more competitive , where the company can make profits, and you will lose ALL those jobs in the UK.

            If you protect jobs and wages you end up with over-expensive and inferior products. If the workforce is never under competition they lose their edge. Then the companies shut down and leave and ALL the jobs are lost.

            This sounds like labour and unions of the 1970’s.

            What is required is to continuously expose the company and the workforce to competition to push them into becoming high value , highly technically skilled employees that make it difficult for anyone to compete for their jobs. Let alone third world refugees without any skills.

          4. forthurst
            May 25, 2014

            “What is required is to continuously expose the company and the workforce to competition”

            Correct me if I’m wrong but that is what is achieved by a free market in goods and services. Incidentally, we English spell ‘sceptic’ with a ‘c’ not a ‘k’.

      4. Iain Gill
        May 24, 2014

        Thanks for your reply John.
        No I don’t believe in unrestrained free markets. If markets were unrestrained by regulation then we would have children sweeping chimneys, factories operating machines without safety guards, and so on.
        Immigration and working across borders is exactly the same it needs to be controlled by regulations which are enforced. I have worked in many countries, but always paid at least as much tax as the locals, always paid for my own medical insurance and care, was always there with genuine unique skills which were not available in the local population which helped the local economy, I always worked for companies which were paying the full rate of corporate taxation and were not engaged in avoidance, and so on.
        The UK cannot sustain uncontrolled immigration from the rest of the world. Allowing unrestrained access to information technology jobs in the UK to those coming from (elsewhere ed) has led to major problems for the UK workforce, and many other unintended consequences. And ( a country like ed) India imposes much stricter rules on Brits who want to work in India, so it’s an unbalanced arrangement.

        1. Excalibur
          May 25, 2014

          You have outlined admirably, Ian, the dangers inherent in this form of immigration, for that is what it is. I posted here recently on this subject but our host (whom I have the greatest respect for) chose not to publish it. Probably because he regarded it as racist. But the fact is that in addition to undermining the career opportunities of English people, through cultural factors such as extended families, and un-English dispositions, they warp the demographics and fabric of our nation. Not content with being given a livelihood, many become political agitators, invariably of the radical left, to our detriment.

        2. Jennifer A
          May 25, 2014

          Iain – The proof that open borders don’t work is in the national debt figures.

          We don’t have to go into the social ill effects which are very difficult to quantify, though they can be seen in the housing crisis which seems to have caught everyone by surprise (or else we’d all have been property portfolio speculators long ago and would never have sold our houses in London or the SE.)

      5. ian wragg
        May 24, 2014

        I think it’s you who is economically illiterate brother. I worked overseas for 20 plus years and had to pay for health care and education etc etc. When my contracts ended I had 1 month to vacate the premises. Nowhere in the world including Europe does anyone treat immigrants as we do giving them everything with immediate effect, paid for by the taxpayer.
        Why should a (EU ed) family come here and get a free house an benefits after 3 months and create (problems ed) in the process.

        1. Gary
          May 24, 2014

          ” I worked overseas for 20 plus years and had to pay for health care and education etc etc. When my contracts ended I had 1 month to vacate the premises. Nowhere in the world including Europe does anyone treat immigrants as we do giving them everything with immediate effect, paid for by the taxpayer.”

          You agree with me.

          Get govt out the way, compete anywhere in the world for jobs based on the skills you have to offer and stop all govt handouts.

          Euroskeptiks are economic illiterate. Sometimes they even agree with you when they think they are disagreeing.

          1. Gary
            May 24, 2014

            To be clear, I don’t agree with EU socialist policy, we in the UK have enough of those type of policies of our own already. However, the single market with a single currency, free movement of labour and free borders is far better than economic isolation

            Those voting for UKIP have just voted for a closed , isolated market.

  5. formula57
    May 24, 2014

    It is all very well raising interest rates but what about the zombie banks whose survival (and bonus-paying ability) has only been sustained by ultra-low rates? What of them? Should we not be asking instead what more sacrifices can we make to aid them beyond the huge bailouts and other subsidies, the misallocating, bubble-creating low price of money, the waiving of prosecutions and other indulgences, all to give de facto retrospective blessing to their past and present sins?

    1. Gary
      May 24, 2014

      That is why they haven’t raised rates and that is why, I believe they cannot raise rates.

      There is, according to the BIS, $700trilllion(at least, since this was a few years ago) open notional derivative mountain. Most of which are keyed off rates. How do you raise rates without toppling that? I don’t believe it’s possible.

  6. John E
    May 24, 2014

    There’s no chance now of delaying the rise until the election, so better to get on with it quickly. I would have voted for a rise some time back.
    There are a lot of perverse effects in the system so best start unwinding them now.

  7. alan jutson,
    May 24, 2014

    The raising of interest rates simply has to happen soon, because too many people are living and making decisions (house purchase) in the existing fools paradise of low interest rates, thinking they are normal.

    Whilst rates need to rise, they need to do so slowly and without panic, unfortunately the general election is due in a years time so manipulation to keep things as low as possible until it is over is a real temptation for those in charge.

  8. Simonro
    May 24, 2014

    What does the BoE use interest rates for? To contain growth, to control inflation.

    Do we have excessive growth?


    Do we have high inflation?


    Why are house process rising? Help To Buy, lack of stock in desirable locations.

    Savings increase when you increase interest rates, do we need more savings? No, we currently have a glut of savings. Do we lack investment for want of cash? No, companies are sitting on record levels of cash.

    So raising rates would reduce what growth we have, push inflation even lower risking deflation, increase the savings glut reducing return (increase supply, reduce price).

    This is all basic economics. 1st year undergraduate stuff.

    Of course, in the mid 2000s higher rates might have been a good idea.

    1. Jennifer A
      May 24, 2014

      What are interest rates for ?

      To reward saving as well ?

      1. petermartin2001
        May 25, 2014

        Not especially. For every saver there has to be a borrower. In the first instance that borrower is likely to be your bank. The bank will then use your savings to buy government bonds (gilts) and so increasing the National Debt!

    2. Chris S
      May 25, 2014

      There is no case for raising interest rates at this time.

      As Simonro says, the purpose of controlling interest rates is to choke off inflation by increasing them and promoting growth when necessary by reducing them.

      We can in no way be considered to be in a situation where inflation is taking off.

      Increasing interest rates is no more than imposing a sudden additional tax burden on families but the money goes to the banks rather than the treasury.

      Increasing rates will have a severe impact on the cost of living for families with mortgages and so would be a direct gift to Ed Miliband.

      In the situation we are in, everyone has to take some of the pain. Savers are fortunate to have capital in the bank so asking them to spend a very small proportion of it as income for a few more years rather than receive interest is an equally small price to pay to keep living costs for mortgage holders down.

      Until we see real wages start to move upwards for everyone we need to keep rates as low as possible. That means leaving them at 0.5%

      Banks have been taking advantage of mortgage applicants during the time rates have been low and the regulators have done nothing to stop them. I have warned of this potential time bomb before on this very website :

      Over the last five years, the Standard Variable Rate, the rate which borrowers have to pay when their initial fixed or discounted rate ends has been steadily increased from around 1-1.5% to 3 or even 4% over base rate.

      That’s OK when base rates are 0.5% but when base rates increase and fixed and discount rates come to an end, there will be severe pressure on many households.

      This practice is nothing more than profiteering in advance for the lenders. They pay a very small amount over base rate for their funds so when the hapless borrower’s initial deal comes to an end, lender will be making a killing.

      All perfectly legal but it’s a scandal bigger than PPI and the regulators have just allowed it to happen.

      If interest rates rise to 4%, some householders will be forced to pay 7.5 or even 8% for their mortgage which started out at a 2 or 3 year discount or fixed rate of 2- 3% . That’s potentially a huge increase.

      With the new tighter lending rules, many will no longer have the option of remortgaging to another cheap deal either.

      I’m pleased that I retired and sold my IFA practice three years ago. I would certainly not have been happy to recommend any of the mortgage deals on offer since then for this very reason.

      John, you should raise this with the Treasury and Mark Carney.

      1. Rob
        May 27, 2014

        “Savers are fortunate to have capital in the bank…”

        Really? So being prudent with your earnings is now to be equated with being fortunate. What happens when savers splash all their cash on new cars and foreign holidays (like is happening now) and all the money runs out. What then?

        The ones who really have been fortunate are the overborrowed, the over mortgaged and BTL landlords who are being bailed out with savers hard earned money.

        If the Tories had done some homework they would know that this injustice played a large part in kicking they received in the European elections.

      2. helen
        June 5, 2014

        “Savers are lucky to have capitol”

        Millions of pensioners have absolutely no option but to rely on savings interest
        They have no company or private pension
        they only have a partial state pension of £66 a week and without income from savings that have been derived from prudence,sacrifice and acrued from taxed income they are in dire straits.

        Many of them are now reliant on food banks and have so severely depleted their savings they will soon swell the welfare bill by claiming Pension Credit

        What a ridiculous and callous way to treat an entire generation who tried to do the right thing and provide for their old age
        Cameron,Clegg and Osborne have RENEAGED on multiple promises to help savers and the switch of votes to UKIP should make them very very afraid because the grey vote has had more than enough of being insulted by King and Carney and robbed by this lousy coalition

  9. petermartin2001
    May 24, 2014

    There are two ways for Governments to revitalise depressed economies. They can increase their spending and/or reduce taxation. Or they can reduce interest rates and create a credit led boom by reducing interest rates. Just like Nigel Lawson did in the late 80’s.

    The disadvantage of the former is that it increases, in the short term, the level of government deficit but done in a controlled way, it will reduce deficits in the longer term as the economy expands and taxation revenue increases. The advantage of the second method is it reduces government deficits in the short term but as boom turns to bust increases them in the longer term.

    So guess what’s happening right now with interest rates as low as they are! Yes rates need to be higher, but to stop, or at least ameliorate the next bust which I’d see coming around 2016/17 then government deficits need to be increased.

    As that is just the opposite of stated government policy there is little chance of it happening.

  10. acorn
    May 24, 2014

    Households are still attempting to pay down their debts, a lot of which is at variable interest rates. The Pound is about 15% overvalued, restraining our export potential and preventing the narrowing of our trade gap. The BoE is holding a third of the governments Gilts on its balance sheet against £350 billion of QE bail-out “reserves”; which are naturally forcing interest rates to zero, and the BoE has to pay interest on those reserves, at Bank Rate, to stop them going to zero. And you want to put up interest rates?

    The housing bubble needs calming, perhaps the Help-to-Buy subsidy should be withdrawn first before sledgehammering the rest of the economy with a general interest rate rise.

    1. Rob
      May 27, 2014

      You know when stimulus has gone on for too long when people start to describe the pound as being at the right level, or even as being overvalued.

      The average level of sterling against our trading partners since 2009 has been about 22% below its average in the 30 years 1977-2006.

      1. acorn
        May 28, 2014

        Rob, can I recommend you have a read of http://www.bondeconomics.com/2014/02/why-rich-countries-should-float-their.html , and the link referred to. If JR allows that is.

        Balance of Payments (BoP). A sovereign fiat currency, that is allowed to float against other currencies, always moves to a balanced state, by changing the exchange rate of the currency. As a net importer, the UK BoP Current Account, is balanced by the BoP Capital Account, that is foreigners buying stuff in the UK and saving Pounds Stirling acquired by selling us gizmos. Too much of the latter pushes up the Pound.

        1. Rob
          May 29, 2014

          In 1930 the British pound would buy you 5 US dollars. Now you get 1.67 with a supposedly “strong” pound.

          With other currencies the difference is even more marked – a pound would buy you 9 Swiss francs, but that same pound would only buy you 1.5 Swiss francs today.

          Do you really think that a drop of 15% in the pound would fix things for good with the UK economy, or do you think that things would then adjust in time so that even after the devaluation there would be further calls for even more devaluation to fix things again? And so on and so on.

          I dont know any other developed country which has devalued and inflated as much as the UK has done over the decades past, and yet there are still calls by some for further devaluation! Maybe Zimbabwe knows something we don’t.

  11. English Pensioner
    May 24, 2014

    Surely the rate is being kept low purely for political reasons. There are a lot of people who have mortgages which they can just about afford at the present low interest rate, but where they have nothing in hand should the rates rise.
    Thus any rise could put lots of house buyers in financial difficulties, which no government is going to allow in the year running up to an election.
    At the same time, those with savings, particularly the elderly, will lose out, but the government has probably lost their votes already, so their plight is unimportant.
    Surely in a real capitalist society, the government (aka the Bank of England) wouldn’t set interest rates but would allow them to be set by banks based on supply and demand ie they would set a rate which would attract enough savers to provide mortgages for the intended borrowers.

    Reply My judgement is not a political one, nor should the Bank’s be political. However, on the politics alone, there are more savers than borrowers.

    1. petermartin2001
      May 25, 2014

      Mr Redwood didn’t answer your question on interest rates contained in the last paragraph. The answer is that government intervention acts to place a floor under them. In other words, intervention can raise base interest rates and lack of intervention can lower them. Left to the laws of supply and demand they would always tend to 0%. That’s what anyone would get for saving, as is almost the case now, but borrowers have to pay a few percentage points extra of course.
      Food for thought for those who advocate that markets should be always totally free from government interference?

  12. Steve Cox
    May 24, 2014

    I agree with you completely here John. Maintaining zero interest rates when the economy is moving along its fastest pace in years is unwise to say the least. If there’s a sudden and unexpected reversal (one of those pesky known unknowns like Crimea and Russian energy supplies, or maybe even an unknown unknown) then the BoE has no monetary cushion to help the economy absorb the shock, other than printing yet more funny money – and we still have little or no idea how much damage the funny money already lurking in the nooks and crannies of the financial system is eventually going to do.

    I also worry that our supposedly independent (which simply seems to be a way of saying unelected) central bank is paying far too much attention to political expediency. If they gradually start raising rates now and the roof doesn’t fall in then the overall impact at the 2015 election will be minimal as disgruntled borrowers will be balanced by happier savers. The longer they leave it the less likely it is that they will be able politically to raise rates before May 2015. I’m also concerned that we have two noted doves joining the MPC, Mr Osbrown clearly has no intention of letting rates rise any time soon. Ho hum, isn’t independence a wonderful thing for a central bank?

  13. Neil Craig
    May 24, 2014

    Economically you are right but politically I think there is zero chance of this before the election for fear that it would choke off our “end of recession”.

  14. Bert Young
    May 24, 2014

    Your views and analysis of economic matters ( I normally am in accord with ) are often at variance with actions taken by the Government . I have felt for quite some time that you ought to be at the right hand of George Osborne prodding and pushing for the economic discipline most right wing thinkers believe is right for the country . For too long the thinking and doctrine of policy and action has been dominated by a circle of ” thinkalikes ” and not influenced by individuals of differing points of view prepared to speak up and be counted . Changing and ridding ourselves of this present method of guidance would be a very healthy step to take ; – keep up the pressure !!.

  15. The PrangWizard
    May 24, 2014

    I’m from the past! I started work in 1962 for what was then the National Provincial Bank. It was in the days of half-yearly balancing of the books, June 30th and December 31st, branch by branch, and if it was necessary to work until midnight or later to achieve it, that was what we did. It was all on paper and all the figures were visible to us. It was fascinating to me and very stimulating as I was from working class mining background, quite a new world. I missed many New Years Eve celebrations as a result, but I didn’t mind, sometimes I left work to walk home, often in the snow, when everyone else was out on the streets moving from house to house celebrating. It seemed hard at the time but I didn’t resent it too much, it was a time of discipline and order, at least that’s what it felt like to me and I believed I was contributing to something worthwhile which contributed to national wellbeing.

    When it came to controlling credit and inflation, I seem to remember that the Bank of England required the clearing banks to hold more cash reserves and this could be fine-tuned. It all seemed so simple then. Pandora’s box was opened later and all the evils of the world were released. I don’t understand the complexities of today’s banking but somehow we must get back to a simpler system which ordinary people can understand and most of all, trust. In those old days I knew all our customers secrets but I kept them and have kept them to this day.

    As for my personal interest rates, I pay what I think is a high rate of 3.99% on my Halifax mortgage and I suspect they are itching to put rates up. As for savings I get 2.50% in two ISA’s and 3% in two regular savings accounts into which I can put the maximum allowed. I don’t feel too hard done by with those rates. It would be something of a travesty if borrowing rates were to go up and savings rates didn’t.

    1. helen
      June 5, 2014

      So pay down your mortgage instead of considering pensioners who had to pay 12 or 15% on their mortgages should starve or go without because their savings income on which they depend to pay basic bills has been slashed by 70%

  16. Leslie Singleton
    May 24, 2014

    The idea or goal of getting “ahead of the curve” seems not to have been heard of by the people running the show. Naive, that’s what they are.

  17. waramess
    May 24, 2014

    Just one tangled Monetarist web.

    Shortly however, having redistributed vast wealth from saver to spender and from production to government, the balance of payments deficit will be far too high to ignore and that is when interest rates will be obliged to increase in order to prevent a mass exodus of foreign exchange from the UK.

    Leave it for too long and the result will be catastrophic so why not stop all this manipulation of money and just leave it too the markets. Borrowers and savers will do a far better job than the “wise men”

  18. Denis Cooper
    May 24, 2014

    Under the Bank of England Act 1998 the primary duty of Carney and the MPC is to meet the target for price stability laid down by the Chancellor.

    As that target is expressed in terms of the Consumer Price Index it becomes a dereliction of their statutory duty if they start to give priority to anything else, such as economic growth or unemployment or the external value of sterling, or even house price inflation rather than retail price inflation.

    I suppose that in theory somebody could seek a judicial review and ask a court to order the MPC to obey the law as enacted by Parliament, but they would need the resources to fight the case against excellent lawyers appointed at public expense by the Bank and the Treasury, and as the judges would in effect be asked to take a position on the validity of complex economic models it is pretty unlikely that the case would succeed.

    There is in any case the question why it should be necessary for members of the public to risk being bankrupted by the costs of such a case when there are 650 elected members of the House of Commons who are being paid to act as representatives of the people and hold the government and the Bank to account, and who should have a strong interest in making sure that a law passed by Parliament is not being flouted.

    I come back to this again and again, that when it is politically inconvenient our elected lawmakers repeatedly fail to insist that the law they have enacted must either be obeyed or it must be changed, but it must never be disregarded by ministers.

    They are ministers of the Crown, and the very first grievance stated in the 1688 Bill of Rights was that the king was disregarding the law passed by Parliament, leading to it being declared:

    “That the pretended power of suspending the laws or the execution of laws by regal authority without consent of Parliament is illegal”

    And that is not a dead letter, it is still on the statute book:


    and still provides the basis for our parliamentary democracy.

    Reply The main task is to keep CPI to target, and that is what the MPC claim to be doing, and recently have been doing. These matters are matters of opinion, and are best sorted out by lively democratic debate. There are few absolute right and wrongs to take to court over influences on the CPI.

    1. petermartin2001
      May 25, 2014

      What’s wrong with including ” economic growth or unemployment” ?

      If the economy isn’t working to close to maximum efficiency then everyone is poorer as a result, and we have to live below our potential means. That should be the main priority for both the Government and the BoE. Inflation is only an issue if it impedes the efficient working of the economy.

      1. Denis Cooper
        May 25, 2014

        Whether that is right or wrong in terms of the economics, the fact is that under the law as enacted by Parliament the primary objective set for the Bank is to maintain price stability, and supporting the economic policies of the government is only a secondary objective.


        “11 Objectives.

        In relation to monetary policy, the objectives of the Bank of England shall be –

        (a) to maintain price stability, and
        (b) subject to that, to support the economic policy of Her Majesty’s Government, including its objectives for growth and employment.”

        As mentioned before, under Section 12 it is the Chancellor who tells the Bank precisely what “price stability” means, and there is some scope for him to redefine his target, but he hasn’t done that; and under Section 19 he could invoke reserve powers, with permission from Parliament, and then tell the Bank to reverse the normal order of priorities, but he hasn’t done that either.

        There is a good argument that these matters should never have been put into law, but Parliament decided to put them into law and that law should be observed until it is changed.

    2. helen
      June 5, 2014

      If you are daft enough to believe CPI is any valid figure for inflation you need several lessons in basic maths ans do the weekly food shop

      CPI excludes housing and council tax which are peoples largest expense yet includes champagne and expensive electronic gizmos average people cannot think of affording

      Those in power have no idea of the price of a loaf of bread let alone run a country and for CMeron to claim he is building a fair society when he has ROBBED savers blind is more insults added to injury

  19. MickC
    May 24, 2014

    Yes indeed, if you want the economy to collapse, putting up interest rates should achieve that in short order!

    Interest rates are not low, other than for savers. Increasing them will not give savers any more (the banks have no intention of doing so) but will destroy the many who are struggling and just starting to think things may be getting better.

    This would be entirely in line with the Howe oversqueeze of the early 80’s when the rise in the pound actually amplified the interest rate squeeze.

    The result was massive destruction of productive capacity- not the creation of efficiencies, which presumably is what was intended.

    Whilst Labour are obviously going to win the next General Election (the non boundary changes have ensured that), it would be best if economic chaos was not the swansong of this Conservative led government. It has already wrought enough damage to its own natural conservative supporters.

    1. Chris S
      May 25, 2014

      Mick, you are absolutely right here : particularly over the failure of Davids Cameron to push through the boundary changes that are entirely justifiable and fair.

      If David Cameron loses the election by less than 20 seats, as seems very likely, he will only have himself to blame.

      He should have called Clegg’s bluff : as the Boundary changes were in the coalition agreement they were government policy and cabinet collective responsibility should have applied. He should therefore have threatened to sack every libdem minister who did not vote for them, including Clegg.

      Had he done so, a lot more discipline would have been apparent over the last three years.

      Conservative MPs will remember this gross error and he will be punished for it if he loses them the election.

  20. theyenguy
    May 25, 2014

    You write, it is time to start raising interest rates.

    I respond, OK, In theory I agree; the start up of savings should in theory, resume. As for the weak banks, they should raise capital like Deutsche Bank is attempting to do.

    And you write “NO more boom and bust cycle”,

    I respond, it was Christ who acted to complete the age of currencies which was fathered by Milton Friedman with his Free To Choose Manifesto, and to perfect the age of credit which was fathered by Ben Bernanke with his QEs, Mario Draghi with his LTRO1, 2, and OMT, and Hiroki Kuroda, with this Abenomics.

    Each of economic geniuses, Bernanke, Draghi, and Kuroda, provided his own credit stimulus for trust in risk on investing; these birthed and defined the investor as the centerpiece of economic activity.

    The sovereign’s monetary policies defined investment choice and established both the confidence and the platform for risk-on investing, and resulted in peak banking equity wealth, IXG, on May 13, 2014, and resulted in peak credit wealth, AGG, on May 15, 2014, thus establishing peak moral hazard.

    Sovereign monies, that is Major World Currencies, DBV, such as the Euro, FXE, are now trading lower. This loss of seigniorage communicates a dwindling of sovereign authority.

    On Tuesday, May 20, 2014, the world entered Kondratieff Winter, the final phase of the Business Cycle, with a credit market reversal and a partial equity market reversal, as investor’s greed turned somewhat to fear, specifically fear that the world central banks’ monetary policies, no longer sustain investment gains and global economic growth, and have made money good investments bad.

    The see saw destruction of fiat investments commented Tuesday May 20, 2014. While World Stocks, VT, and Nation Investment, EFA, may trade higher, Global Financials, IXG, and Dividends Excluding Financials, DTN, as well as Credit Investments, AGG, are trading lower, as the bond vigilantes have control of the Benchmark Interest Rate, ^TNX, which traded lower to 2.51%, but remains above support at 2.49%.

    On Tuesday, May 13, 2014, wealth destruction commenced in the Eurozone on the failure of credit. specifically the failure of trust in the world central banks to continue to stimulate investment gains as well as global growth. With the trade lower in Italy’s Sovereign Debt, ITLY, and Italy, EWI, and the European Financials, EUFN, the world has passed through an inflection point: the world has pivoted from the age of credit into the age of debt servitude.

    The failure of credit, that is trust in the monetary authority of the world central banks, is beginning to cause the death of currencies, starting first with the Major World Currencies, DBV, such as the Euro, FXE, the Swiss Franc, FXF, the British Pound Sterling, FXB, and the Swedish Krona, FXS. And coups throughout the world, such as in Thailand, and the Ukraine, are starting to cause the dissolution of traditional democratic nation state governance.

    Inflationism is turning to destructionism.

    The world has pivoted from the age of currencies and the age of credit … and into the age of diktat and the age of debt servitude.

    On going disinvestment of currency carry trades and debt trades will introduce the much feared economic deflation on a worldwide scale.

    And out of soon coming economic chaos, people will come to trust in new sovereign authority and monetary and economic policies of regional economic governance and schemes of debt servitude to establish regional security, stability, and sustainability, where the debt serf is the centerpiece of economic activity, and ever increasing poverty is the way of economic life.

    Perhaps you might give more though to the impending rise of regional governance, that is regional governance far greater than anything you have complained about in the past, than to banking!!

  21. Mike Stallard
    May 25, 2014

    What surprises me is how well the government and BBC say we are now doing.

    We have a massive increase in government debt, fuelled by the TU backed Labour Party in competition with the Chancellor, who is also running the election programme.
    We have banks which somehow or other magicked away all their useless bonds in 2008.
    I simply do not understand.
    The USA is massively in debt too and is drawing in its horns leaving all its former allies high and dry.

    My friend the offshore hedge fund manager is getting more and more bearish.

    1. Lindsay McDougall
      May 26, 2014

      If Government debt is too high in relation to a nation’s GDP, it is not free to fight wars of its choosing. Sometimes that’s a bad thing, sometimes a good thing. Because George W Bush fought two expensive wars, his successor is unable to.

      A nation that is in a position to fight wars of its own choosing is Russia. Its Government debt is only 10% of GDP. It is also better placed than the heavily indebted US, UK and EU to bail out the Ukraine.

  22. margaret brandreth-j
    May 25, 2014

    If a state in the EU is demoted to candidate member ,does it mean that, as you say and taking into consideration states cannot be expelled from the union that the state will be ‘on hold’ for borrowing or are the penalties more extensive ? Would they have to revert to the original entry criteria of 1.5% inflation and a deficit of not more than 60 % of GDP or would they be allowed in ‘proper’ at the same previous sloppy conditions?

  23. JoeSoap
    May 25, 2014

    Well, voting UKIP seems to be working in a slow and uncertain way. Cameron now proposing to put wealth tests for EU immigrants into the Queen’s Speech. Whether these actually get into law or through Clegg, Brussels is, of course, a completely different matter.

    How much more effective would it be to have real UKIP people implementing real UKIP policies instead of these people working under pretence of believing in what they are trying to do? Why not leave the EU and implement the proper points system called for by UKIP instead of these half-baked measures?

  24. APL
    May 26, 2014

    “Time to put up interest rates”

    While secured rates are at an all time low, tied as they are to the BoE base rate, unsecured rates already are extortionate.

    A bank can borrow money at UK base rate and lend it for purposes of credit card borrowing or unsecured personal loans at an obscene markup.

    It is not true to say rates are low, the banks have been crucifying unsecured borrowers for the last five years.

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