The latest report from the MPC of the Bank is as muddled as ever. They record that their February forecast was too optimistic on growth, too pessimistic on unemployment, and got inflation wrong. This time they have boosted their ideas of Uk growth next year and the year after to more realistic levels, but taken 0.1% off this year after big upwards revisions last time.
They keep referring to inflation going up thanks to lower sterling, and trying to find a Brexit related explanation to other changes. It’s as if they forget we are in an active global economy with many linkages to the world. They did not ask themselves why UK inflation has gone up about the same as German and a bit less than the US. They forgot that dollar oil price rises underlay much of the US inflation, just as it underlay inflation in other countries that had not had a fall in their domestic currencies. They seemed to fail to make the link between weaker first quarter growth in the Uk and also considerably weaker first quarter growth in the US where the currency has been strong and in most of the Euro area.
Weak first quarters on both sides of the Atlantic owed much to a mild winter hitting energy output and demand. Higher inflation in most places was related to the oil price and general commodities. This quarter oil and commodity prices have fallen, the pound has risen and in the UK the weather has been colder for the time of year. All this points to another change of direction for inflation and output.They asked if weak UK cars sales in April means weak consumer confidence. Surely it is instead the response to large rises in VED in the budget which may reduce sales for more than one month, just as Buy to Let taxes are still hitting the second hand homes market.
It looks as if there will continue to be a synchronised recovery in the main economies. It is difficult to see much sterling effect on prices given the way UK inflation has moved as in other expanding economies with stronger currencies. It is also difficult to see why Brexit should have the impact on the Banks forecasts, as they helpfully assume a smooth Brexit as their base case.
I do agree with their decision to put up their output forecasts for the next two years, and their upward revision to employment.
Published and promoted by Fraser McFarland on behalf of John Redwood, both at 30 Rose Street Wokingham RG 40 1XU
May 14, 2017
I agree fully. But why is Carney still there after his appaling attempte to trick voters in the Brexit Referendum and his dreadful record in general.
Booker today sensibly points out that even if Theresa May’s “cap” on energy saves £1.4 billion a year (which it clearly will not anyway) then this will be dwarfed by the additional £7.4 billion a year due to be added to our bills under the Climate Change Act.
Why is this never even discussed, certainly not by Greg Clark?
May 14, 2017
Lifelogic,
Read the Matt Ridley article at the Spectator
https://www.spectator.co.uk/2017/05/wind-turbines-are-neither-clean-nor-green-and-they-provide-zero-global-energy/
May 14, 2017
I did and he is quite right. Even if you believe in the exaggered carbon “pollution” religion of climate alarmism (and I do not) then “renewables” still make no sense anyway.
May 14, 2017
Carney was and is part of project fear. JR, he should have been sacked for being too political and making the BoE look stupid in its forecasts. May was and is a remainer. What is there not to understand by your posed question? She will try to deliver EU light. Cameron was trying to agitate last week by his dopey comments.
A better question: why did your party ensure a remain PM (and inevitably a remain cabinet) was put in place to implement Brexit? It was not to implement Brexit per our wishes. The remainiacs are all still at it. Anyone sensible would have walked away from any negotiations with the EU after their comments so far.
May 15, 2017
Do renewables also make no sense in Costa Rica?
May 14, 2017
I’ve read this and many other articles all saying the same things. If we can comprehend it why are our politicians so slow on the uptake and why are we all being ripped off over energy prices? How come the poor are being made poorer while the rich gain?
May 15, 2017
In the article, ‘Even put together, wind and photovoltaic solar are supplying less than 1 per cent of global energy demand. ‘ To say this could suggest that we need more of those suppliers and that global energy demand is just too much – why? -overpopulation which needs all that energy.
That wind turbine construction etc. needs fossil fuels and the concomitant pollution is correct.
Can anyone say that Costa Rica’s renewables push is a mistake? I don’t think so. Other countries can make it work but not all.
May 14, 2017
@LL; “But why is [the BoE Governor] still there after his appaling attempte to trick voters in the Brexit Referendum”
More crystal ball gazing by fundamentalist Brexiteers. We have yet to find out who was correct about the effects of Brexit, after all we have not had Brexit yet, all we know for sure at this juncture is that right or wrong, good or bad, we all (well those who actually live in either England, Wales, Scotland or NI…) now have to live with those effects what ever they are and only a fool would not plan for the worst, even ore so out of political stubbornest.
May 14, 2017
Yawn!
May 14, 2017
Jerry, the remainiacs referred to immediate consequences from the referendum vote. Dull ill informed reply. At least be factual.
May 15, 2017
@Hope; OK, have it your way, see my reply to Zorro, there were immediate consequences.
“At least be factual.” The pot trying to call the kettle black again…
May 14, 2017
Nonsense – look at what they forecast at the time and when they said it would happen. They were incorrect on bith counts.
zorro
May 14, 2017
@zorro; Fine, have it your way – ‘Brexit’ has happened! In the days following the 23rd June 2016 the GBP tanked, so actually the BoE has been more correct than Brexiteers have…
All I’m saying is that no one should be counting their chickens just yet.
May 15, 2017
Jerry: “In the days following the 23rd June 2016 the GBP tanked ”
Which occurred because the speculators lost their bets and sold everything to meet their obligations. Of course you heard about the losers because it’s in their nature to look for someone to blame, and hearing bankers whinging about losing money on their Brexit bet, fits the BBCs narrative that Brexit would be an unmitigated disaster.
Some people made money on their Brexit bets. They just didn’t care to boast about it in the media.
Jerry: “so actually the BoE has been more correct than Brexiteers have…”
No, correlation – the fall in stocks and sterling after the Brexit result, – is not causation.
Voting to leave the EU didn’t cause the drop in stocks, nor the fall in sterling.
The bankers losing their bets on the result forced them to sell everything ( result price goes down ) to pay their obligations. You look at the chart of Gold and PMs immediately after the Brexit vote, it sky rocketed.
Those people who won their vote bet, they had more money than they could spend all at once, but they sure put some of that into the relatively small PM market. Because no one was ready to buy stocks just then.
Please stop your revisionist nonsense.
Reply Shares and bonds rose after the vote following a sharp mark down on the first day, and soon went higher than before the vote. The pound started falling in the summer of 2015, long before the vote or before markets thought Brexit might win. The biggest part of the fall happened before the vote. The pound has been rising for the last two months, and is currently 8% up on its lows.
May 15, 2017
APL; “revisionist nonsense”
Mr Pot, have you met Mr Kettle yet?…
Also, judging it on your rational, the “Black Wednesday” declarable was good news (beyond the fact that the UK remained outside of the Euro), after all some made their fortunes even if many more lost their shirts and perhaps even their family homes.
May 15, 2017
Jerry: “judging it on your rational, the “Black Wednesday” declarable was good news ”
“declarable”? Perhaps you mean débâcle ?
Black Wednesday and BREXIT Friday are at the moment two completely separate events, having entirely different causes.
But it illustrates why attempting to discuss a topic with you is such a sterile exercise.
May 15, 2017
As I said, not everyone lost money on the BREXIT vote..
https://www.ft.com/content/c02fe256-3aaf-11e6-8716-a4a71e8140b0#axzz4CwbGT733
May 14, 2017
Well he has been wrong on nearly everything else.
May 14, 2017
All these regular estimated future calculations from all sorts of organisations, not just here, but from around the World, seem to be fraught with so many caveats I do wonder how useful they really are.
If they rely upon the weather, consumer/business confidence, many governments ever changing financial policies, population movement, perhaps even the actions of terrorist groups, old computer programme models, how accurate do we really expect them to turn out, when human nature in itself is complex enough. ?
Governments change, budgets change (even when a government is stable), forecasting the weather week -week seems difficult enough to get right, let alone all of the other factors.
Who included the last banking crash into any forecast !
Surely it is time we gave up all this into the future crystal ball gazing on which many policies are formed and based, for our own financial health and sanity.
May 14, 2017
Weather (Lorenz) and the economy (Mandelbrot) are chaotic systems.
May 14, 2017
Another excellent perspective, thank you.
It seems that major institutions such as the BoE continue to be blinded by two factors. Their Remain beliefs are still so entrenched they can’t see past them. Even if they could, they are personally too invested in the doom and gloom they predicted before the Referendum and they’re trying to salvage their reputations in any way they can.
Your forecasting record in the lead up to the Referendum and since, has been more reliable than a great many institutions.
Best wishes, the Brexit Facts4EU.Org Team
http://facts4eu.org/news.shtml
May 14, 2017
Good morning
It always good to remind ourselves that our kind host has a good reason to talk things up. But as someone who is more in tune to what is going on on the ground, like many here I am sure, there is a definite slowdown in the economy. The reasons are many and have been mentioned already, but economic activity is definitely cooling.
One thing of concern is that the governments tax take might well be down which will most certainly lead to higher taxes and more borrowing. As this government is clearly not a conservative one I do not expect cuts. After all it will need the money to upgrade and secure the NHS IT system .
Of topic
May I congratulate Andy Burnham on becoming the Mayor of Manchester. Another unwanted layer of government that me like our kind host does not want. Apparently he wants to get rid of homelessness. I have a slogan name for it, call it the Manchester Care Path.
Whoever said that failure never goes unrewarded.
May 14, 2017
Indeed, “Another unwanted layer of government”. Yet more and more parasitic activity, all killing productive activity & the UK’s ability to compete in World markets.
May 14, 2017
Yes. Why are petrol prices still comparatively low? Surely the effect of Brexit on sterling should have pushed the price up by 15% or so?
I spilt a cup of tea this morning but still search for a Brexit related reason. Should I call Mr Carney?
May 14, 2017
Much talk in the Labour party of preventing Theresa May turning into a Lady Thatcher two and of Labour “holding her to account”. Have they thrown in the towel already?
If we could stop her being a misguided, high tax, market distorting, gender pay reporting and endlessly interfering Theresa Milliband it would be a good start.
Anyway even Lady Thacher also failed to cut the state down to a sensible size, intervened far too much, taxed and wasted far too much, joined the bonkers ERM (against the sensible advice of Sir Alan Walters) and allowed far, far too much power to be handed to the anti-democratic EU.
May 14, 2017
The Bank needs a change of personnel, particularly at the top. As a key player in project fear mr Carney’s utterances and actions appear too much to be driven by proving himself right
May 14, 2017
The short answer is that the Bank is run by a politician.
May 14, 2017
….and a “carefully” chosen one (by Osborne/Cameron?) at that.
May 15, 2017
Indeed a dreadful and very expensive choice, both in his remuneration costs but far, far more expensive to the country in the many huge errors made in policy.
May 14, 2017
Any organisation that feels the need to claim it is “independent” never is.
May 14, 2017
(JR – really sorry for the length)
Why? Impossible to tell incompetence or conspiracy/excuse are difficult to separate.
One possible suggestion is that, after the Brexit vote, the exchange rate (EERI) dropped to levels lower than it was back in 2010-2011. Hence it is easy to expect a period of the BOE failing to miss its targets again. Of course there is a simple transmission mechanism between interest rates, exchange rates, and input prices – an alternative explanation would be to say that the depreciation shown by the EERI coincide with a reduction in the official bank rate by 0.25% rather than perhaps recognising the mechanism and increasing the rate. The BOE made this ‘mistake’ under the previous governor 2010-2011. So we expect 4-5% inflation in the next 12 months, but as in 2011 the electorate cannot tell whether this is incompetence, BOE independent policy or agreed with the Treasury.
Even though when the current PM took on the role she noted the problems of the current monetary policy – she did not term it a rigged financial system, as the leader of the opposition does, but she did not recognise the problems caused. Nonetheless, she backed away from this when the Governor appeared to cry baby a bit. The situation is (i) that those holding assets hugely benefitted, and benefit, from QE and artificially low rates, (ii) that the QE + Govt borrowing mechanism is not direct to investment, nor leaving fair market sovereignty, (iii) low interest has maintained zombie companies, reduced M&A and allowed companies to look at very low risk projects rather than more innovation (little dynamic competition) (iv) the effects of (i) to (iii) contribute to distortion of resource allocation so that even the deputy governor notes houses are a better bet than a pension, (v) due to the geographic distribution of initial endowments (i) leads to growing inequality between the regions.
Either the Govt and BOE does not jointly know how to get out of the QE/low rate trap, or the system is ‘rigged’, or for some reason the BOE is too independent – we the public cannot tell. I would have hoped that the current PM would have realised that stable monetary policy at this level is the wrong kind of stable, strong enough to change the governor, strong enough to change the rates, strong enough to change the BOE independence? Stable OR Strong – not ‘and’ in this instance.
(On the plus side Mr Carney’s forward guidance has been consistently wrong …)
May 14, 2017
Whoops “she did not recognise” should be “she did recognise”
May 14, 2017
Experts are predisposed to believe they are better at making decisions than the millions of producers and consumers on whose behalf they are deciding. History tells us that the opposite is the truth. Only when millions of people interact to voice their demands and work together to satisfy those demands even though they may never have met are the right choices made. Experts are like a stopped clock they are bound to be right sometimes and they can make educated guesses based on historic data. However those guesses are just that and to treat them other than that which experts demand that we do is presumptuous.
The BoE demands that we accept their pontifications as sacred because their experts are omniscient. After all are they not guardians of our financial well being. Except they are not their experts second guessing the populace as part of the machine that plans and controls our economy get it wrong far often than not.
May 14, 2017
Our blessed ‘forcasting’ institutions – master purveyors of the art of rear view mirror driving – seemingly unable to effectively analyse real market data and horizon scan in the short/medium term – Brexit being a prime example!
zorro
May 14, 2017
The problem arises when Political actions are executed to the detriment of the populace, due to these so called experts (that are generally financially immune to their ill informed prophecies). As we all know “experts” can be bought!
In all cases there is a toing and froing in general economics and we will only know whether Brexit has been truly successful in the next 5/10 years. But I am sure many other events will over shadow this mini epoch in the UK’s history?
The good news however, with a fair wind, most so called experts that have been today’s persistent naysayers, will have retired and the next generation crop of experts will have a better handle on economic realities…..possibly?
May 14, 2017
It’s not just Carney at fault . The composition and role of the MPC is at the bottom of the forecasts – they have been stooges to the slightest whim and , in the run up to the Referendum , to the Treasury . It is supposed to be an independent body capable of reading the messages and keeping inflation under control ; it has failed .
Such a Committee charged with a responsibility that has such a far reaching effect on the public , should be drawn from a wide source of backgrounds , it should not be limited to a group of Bankers . Economists in particular only draw their assumptions from an array of detail that in itself is always questionable ; it would be far better to link in those individuals who are at the front end of industry and commerce ; they are in a much better position to know what is likely to happen to prices and incomes .
May 14, 2017
The BoE by its own admission was completely wrong about the immediate aftermath of the Referendum vote. That should have been the last time for some years we heard from it.
You could not be so wrong, be so important, be so central and expect to have had a job at the end of June 2016 unless you needed a further month to clear out your office desk.
For all sometimes unfair criticism levelled at Mr Osborne, he fell on his sword. By contrast our present Chancellor of the Exchequer, Philip Hammond, cannot seem to get his Truth-Teller out of his scabbard.
May 14, 2017
CofR
…….Mr Osborne, he fell on his sword………
I think you’ll find that Theresa ran her sword right through him.
May 14, 2017
Caliburn
“Mr Osbourne, he fell on his sword”
Not until he was sacked by Mrs May, and told he had no future in Government he didn’t, in the meantime he tried to get as many additional jobs as he could whilst still drawing a full Mp’s salary.
Please do not hold up Mr Osbourne as some sort of shining light, given he tried to put fear into the Nation to suit his own argument.
May 14, 2017
Probably the Bank’s human fears of loss after Brexit need to express caution as a form of control. Spreading fear seems to put others in a state of dependence. Even if the bank’s experts pretend to have no fears, they would be afraid to express optimism for fear of being proved wrong in the future. So pessimism inspires the fear that leads to more “justified” controls. After all, it’s all about power and influence, not public service. Ultimately, their plans for the future are hidden and need to be protected.
May 14, 2017
Is it true that Theresa May’s battle bus is the one used by the Remain campaign used last year and the Tories have blocked pro Brexit candidates from selection lists while Remainer Tories are being given safe seats?
#Worried
May 14, 2017
Well some of us have said that TM may use a strong electio victory to water down the effect of Tory Brexiteers….. Time will tell for sure
zorro
May 14, 2017
“Why is the Bank of England so mesmerised by Brexit?”
Much the same reason Ms Lagarde of the IMF when challenged that her dire prognostication on the result of the Referendum in the event seemed totally wrong replied “Well, we’ll see what happens in the future” . It is failure to admit incorrectness like an obsessional gambler betting good money after bad on a “Sure thing!”
Admitting you got something wrong, even a major thing, is essential for a person of high intellect and position. Take myself, I thought Mr Corbyn a man full of wit,in the event I was only half right.
May 14, 2017
That’s exactly what I thought ! 1st quarter growth same as last year, no need to downgrade at all ….Brexit Bias from Carney ….AGAIN !!
May 14, 2017
Let’s not forget Carney & Co.’s unneccesary cut in interest rates last year. It was a “”look at me aren’t I great at saving the Uk economy”” gesture. The response to a weakening currency and increasing inflation is not to cut interest rates. The man is an overpaid waste of space who our new PM should have sent packing. He has got little right. Hopefully, with a new mandate she will feel emboldened to terminate him with immediate effect because he isn’t doing a good job!
May 14, 2017
john, it is for the same reason that the Met office and the BBC have so manifestly destroyed public confidence in the weather forecast. Years ago, the BBC and Met agreed that because ‘global warming was real and present’ that the trend had to be factored into all forecasts. So we had several years of forecasts of hot summers and mild winters, and every single one was wrong. They overrode the science and years of experience in forecasting for a political / propaganda reason. Now the public has no trust in the Met and BBC weather, in fact it is funny to see how wrong they always are.
In the same way, I believe the ‘experts’ at BOE thought that Brexit would be bad, so every piece of evidence they see is self-censored by the fear that their expectations will be met, so they are consistently wrong with every statement, every calculation and every forecast.
The solution is that the BBC and Met office need defunding, the BOE needs new management, and if anyone wants to know what the weather will be like, can I suggest this fantastic website provided by the Norwegian Weather service at a cost of zero to the British public, that is far more accurate than anything else I have found…. https://www.yr.no/sted/Storbritannia/England/London/
May 14, 2017
Sack the Head of the bank of England, he is negative and that isn’t good for the country. He should be talking up the UK not always dragging us through the mud.
May 14, 2017
Canadian business news outlets appeared enormously proud when their own Mr Carney became Governor of the Bank of England. For weeks,and not much longer than four weeks, they oft quoted him. Now he seems like the obscure classic novel one was forced to read by your first year senior school eccentric English teacher. The two heroes get married and live happily ever after. Eh???
May 14, 2017
There is no way the BOE is Independent thats for sure
They can read figures but cannot make an accurate analysis
They are Terrified that leaving the EU will be a Success
May 14, 2017
“In short, central banking has been neither necessary nor sufficient for the development of a modern economy and financial system. A number of reform proposals for the FED are being crafted, but there is no agreement on why the institution exists.” (Cato).
We don’t need a Central Bank or “monetary policy” (mp), they are a relic, like the IMF, of the Gold Standard monetary system. We need a Pound Sterling payment clearance and settlement system, overlord / regulator. Once we have got rid of the “mp” bit of the BoE, we can put what’s left, back into the Treasury; merge it with the Debt Management Office and rename the result, the Cash and Reserves Issuing Office.
We do away with the voluntary “full funding” rule, that is, we stop issuing Gilts to match Treasury spending. We regulate demand in sectors of the economy with dynamic taxation (Fiscal Policy) to control inflation. If there is something happening in the economy that society does not want, we tax it to a standstill, if necessary. Say, a Tobin tax on casino banking; which is about 93% of what the Spiv City of London does on an average day. It really should be regulated by the Gambling Commission)
Remember that the government eventually gets all its spending back by taxation. At any moment, the difference between its aggregate spending and its aggregate taxation, is the spending, that is being saved by the non-government sector households and firms. We call it the Public Sector Net Debt.
May 16, 2017
Saving is down
Debt is up
May 14, 2017
You could write to them.
May 14, 2017
President Macron says France is on the verge of a “Renaissance.” Unlikely, though no-one can doubt the authenticity in style in his pronouncing it. Compare Gordon Brown’s “green shoots of recovery” which sounds rather rustic or churlish lacking finesse. He was a loser too and one can only wish he would campaign for the SNP instead of being broadly, very broadly on OUR side.
May 14, 2017
Wow. What a clear and concise summary for us “Plebs” Thank you John.
You have made it even clearer for us to realise that the current Governor of the BoE is no better than the likes of Ms Sturgeon and certain leaders of political parties who declare that their failures are not failures at all but achievements AND expect to get away with it.
Considering your own extensive CV, you have been a Director in Rothschild Banking and the Chairman of Norcross, a PLC company so, vitally, you have the experience in both Banking and the effects of decisions made within Banking upon UK industry. In short, you know what you are talking about.
Dare I ask the BoE if they have such a qualified director working there?
As most all of us are aware, in the Private Sector, those who do not perform are quickly removed from office, including those who fail to achieve their forecasts and miss their all-important predicted targets. How else are they to be gauged?
Sadly that discipline is not mirrored by the Public Sector, where a loss of face is considered much more relevant than any incompetence in the job. Sadly, this appears to be the case in the BoE, too.
I now wonder why Mrs May extended the Governor’s contract and why she has not appointed a British Brexit man/woman instead.
I do not believe there is no one else suitable and available in our country and I shall feel less concerned when there is a pro-Brexit British citizen back in control of OUR Bank of ENGLAND.
May 14, 2017
Let us hope Mrs May will deal with the Royal College of Nursing in their attack and their supporters’ attack on the British people this summer and at other times and dates, severely.
May 14, 2017
As I believe, the BoE use a computer model software to establish their forecasts. Much like the Met Office!
In the case of the BoE, I believe they utilise a Stochastic Equilibrium Model. Such a “perfect” model is inappropriate for any economic forecasting.
Such a model might well be sufficient to establish the effects upon a car driving 40 miles down a motorway but it would not be able to cope if that car turned out to be a horse. Here, that ‘horse’ is a factor the BoE model ignores in its economic forecasts. Ditto the AGW supporting Met Office, I guess.
In this particular case, until the BoE grasps the problem with Equilibrium modelling they will never get it right for the economy is a very complex subject and rarely fulfils the parameters of “equilibrium”.
Should someone in Government draw this to their attention?
May 14, 2017
All very important Terry, and of course it’s impossible to factor-in human nature which seemed to be the main factor in the failure of Long-Term Capital Management in the late 90s. People simply didn’t do what the computer model said they would do.
May 14, 2017
BoE/Met Office….but at least they are both consistant…they both get it invariably wrong!
….another question: would the country run better without a Government?
May 14, 2017
NSA , NASA, FBI, US Defence Department,US Democratic Party, CIA, major UK and US companies have all been hacked in the past twenty years.
If you as a nation wrote all your work down on special pieces of paper which could all burst into flames at any moment, would you continue to do it?. If your head bled profusely every time you hit your head against a brick wall would you
A/ Blame it on the wall?
B/ Blame it on the mortar?
C/ Blame it on the bricks?
D/ Blame it on its location?
E/ Blame it on the owner of the wall?
F/ Blame it on Bill the Builder Bill Gates for not providing you with a crash helmet and straight jacket?
Watching intelligent people in the UK and worldwide dashing about with crushed skulls shows our educational system is just another brick in the wall.
May 15, 2017
So if we have a mild winter we have weak growth?
Not using energy is actually a positive thing and saves us money.
Reply I am giving you the economics, not the morality of it all. If the weather is mild there is less energy output, a feature of the US as well as the UK this winter.
May 16, 2017
Mr Redwood is almost as confused and confusing on inflation as the Governor of the Bank of England, and seems just as determined to reinvent cost push inflation. Inflation is primarily a demand pull phenomenon, driven by the Bank of England’s ultra loose monetary policy. I don’t know about Eurozone or American inflation, but UK inflation has risen rapidly inside the past year, from a standing start.
If monetary policy continues unchanged, the UK will have 5% inflation by the end of 2018. Raising of base rate will become inevitable, and the longer the process is delayed, the greater will be the pain of repossessions of houses and the misery they cause.
Would all of you who are so relaxed (i.e. complacent) about sky high house prices consider what will happen to generation rent when they reach old age without owning property? That’s your children and grand children that I’m talking about.