Bank of England needs to behave responsibly

The Bank of England needlessly slowed the economy misjudging the economic outlook last year. So far this year it has resolutely refused to ease as the virus has damaged prospects. I have consistently advised a different approach to reserve asset ratios, liquidity and guidance on lending to banks.

A cut in interest rates out of a normal meeting is not a good idea. What we need is practical measures to help banks and markets see businesses through temporary cash flow problems, and to allow growth in the economy suffering the virus shock. I welcome the Bank’s belated cancellation of the counter cyclical buffers. I argued against this wrong move when they made it at the end of last year.


  1. Iain Gill
    March 11, 2020

    Also need to get a grip on the corrupt and incompetent financial ombudsman service.

    Treasury select committee feedback on FCA and their lack of action on poor behaviour in the financial sector needs real decisive action.

    IR35 needs scrapping.

    Help individuals not the banks this time please.

  2. oldtimer
    March 11, 2020

    Cash and cash flow are and will continue to be the critical ingredients to sustain business activity, not interest rate cuts. We shall discover today if the government understands that. From the newspaper headlines it appears that it does.

  3. Lifelogic
    March 11, 2020

    The virus shock will surely get far worse before it gets better. As you say many businesses will need significant help with liquidity. Many will not make it at all anyway. The banks are generally slow to act and have very high margins, restrictive terms and fees.

    In a couple of day HSBC is to bring in a single overdraft rate of 39.9% for UK customers from March 2020, as much as quadrupling the rate it charges some customers. Very helpful of them to have this rip off rate of 160 times base rate.

    The BoE have just taken the rate down to 0.25%.

  4. Richard1
    March 11, 2020

    Looks like they didn’t get this message. I can’t see what possible good an emergency cut in interest rates will do. What difference will that make to businesses contracting due to the coronavirus? Availability of credit is far more important.

    I fear there’s a little corner of continuity remain constantly looking to blame brexit for anything adverse. They’re going to have to go the full hog and just blame the coronavirus on Brexit.

  5. Know-Dice
    March 11, 2020

    Too late BOE just dropped rate from 0.75% to 0.25% does that really help or is it Mark Carney fiddling whilst the UK heads for the doldrums?

  6. Lifelogic
    March 11, 2020

    The gap in earnings between those who went to university and those who did not has almost halved in a generation, according to a study by Warwick University and the Higher Education Statistical Agency. Less than 11% and that is before tax and repaying your student loan I assume. So not financially worth it at all then.

    Furthermore (outside a few protected professions) graduates earn more as 1. they tend to be brighter and 2. they tend to have better family connections and wealthier families – not through what they actually learned in the degree. The graduate surplus confuses causes and effect as usual. About 75% of degrees are really not worth the £50K of debt and loss of three years earning.

    Having said that I found that my contacts from universities were quite useful when I went into business, often good for finding a wife or partner too.

    1. Lifelogic
      March 11, 2020

      I meant not (in general) through what they learned in the degree. Clearly in a few subjects at universities the degrees do actually teach you useful some valuable things, perhaps some 25% of UK degrees are worth the fees and loss of earnings.

      1. Sir Joe Soap
        March 12, 2020

        It’s not just the debt, but also the loss of earnings which would double that £50k.
        Unfortunate that Sunak didn’t take an axe to this crazy system yesterday. He had the ideal opportunity, having pumped billions into good University R and D, to also cut the Micky Mouse courses and those who provide them. They could be replaced by training courses for the real world.

      2. glen cullen
        March 12, 2020

        Agree with your assessment and comments

        Universities are private education business companies, we (govt. tax payer) purchase courses from them. Its time for the buyer and not the seller to say whats purchased

  7. Jack Falstaff
    March 11, 2020

    …. looks like “the last thing we need” has just happened Sir John!
    The Bank of England bodging again by doing the opposite of what logic dictates in a move that is true to its contrary form!

  8. Aaron
    March 11, 2020

    Hi sir John, I assume the government has taken into account many flexible workforce contractors stopping work after the 6th April due to IR35, due to blanket inside IR35 decisions by clients? This will start to materialise in the economy due to companies stopping, suspending or delaying capital projects, in 3-6 months time.

    Who will the government blame when contract nurses and other key workers don’t renew contracts because it puts them into a tax bracket they can’t afford and spent considerable effort working to be independent from?

    If the government are going to tax people like employees, it’s only fair to give those people employee rights.
    You have an opportunity before the budget to stop ir35 before the combined economic slump, virus pandemic and loss of workforce knock the U.K. economy to its knees.

  9. Fred H
    March 11, 2020

    Sir John you stated yesterday ‘Cutting interest rates is not a lot of use from here.’
    – which is what the B of E has now done.

  10. Steve Reay
    March 11, 2020

    Savers pay the price of Coronavirus. The BoE could lend money directly to businesses, and collect the loan through taxes on profits.

    1. Lifelogic
      March 12, 2020

      I think the victims who die will really pay the main price!

  11. Nig l
    March 11, 2020

    I do not believe they act independently of the Treasury whatever is spun. HMG should surely be the main target for criticism.

  12. miami.mode
    March 11, 2020

    Most people will stay at home as much as possible rather than go out, so there is bound to be a slowdown in spending. Companies with too much debt will go under.

  13. Sir Joe Soap
    March 11, 2020

    Interest rates are neither here nor there in this scenario.
    We have a method of proof for sick payment in the positive testing for the virus.
    Clearly the government should pay salary at least at their beloved minimum wage to companies to pass on to employees. Second put a ratchet up mechanism of aid when firms have 10%, 20% etc of staff positively tested – delay VAT returns, PAYE, Business rates, NEST, NI, Corporation Tax.

  14. Dave
    March 11, 2020

    To rely on banks to see business through this virus is like expecting a burglar to lock the door after he’s robbed your house. It sounds like you want another bail out for the bankers. How about a bail out just for ordinary people this time? Small businesses are being hit already but I doubt that’s registered in Westminster yet.

  15. ian terry
    March 11, 2020

    Sir John

    Sadly it is a sign of our times. It is not only the Bank of England that needs to act responsibly.

  16. Matt
    March 11, 2020

    Well. Seeing as mortgage lenders are making a pretty penny out of the interest rate cut they should be forced by government to be lenient when it comes to mortgage defaults owing to coronavirus.

    What of student loans at usurious 6% still ?

    And business rates reacting so far behind falls ? The laffer effect here shows boarded up shops everywhere – where else but in a socialist state would a provider charge way in excess of what the market can bear and not give a toss about their customers walking away ?

    Where else but a socialist state would cuts in services be met by increases in council tax whilst tens of thousands of new householders (council tax payers) are brought into the area through over building – no new infrastructure, doctors, schools ‘n’ ‘ospitals ?

    The sheer lunacy of those running local government cannot be better summed up than in the policy of open top bin recycling – especially near rivers and coast, the biggest cause of litter and plastic polution by far. And the extra charges for being responsible and taking things to the dump rather than fly tipping.

    Tax the f*** out of people getting a job and driving to work.

    Over ten years of Tory rule still sees people being punished for trying to do the right things and people rewarded for doing the wrong things.

  17. ukretired123
    March 11, 2020

    Carney was a puppet stooge of the Remain campaign…
    (What will be his final act?)
    Not a so-called independent Bank of England!

    Supposedly independent under Gordon Brown.
    Whilst it has been ultra-conservative with bank stress-tests
    Europe’s banks are ultra-vulnerable and exposed.
    The Euro looks shaky too.
    I fear for SMEs under IR35!
    Uncertainty has torpedoed hopes.
    We must resolve to change who runs this country .
    We escaped from the EU just in the Nick of Time.
    The corona virus shows the EU’s folly and inability on multiple fronts :
    Unable to assist Italy, forcing planes to fly empty,
    closing their HQ area time of crisis with no leadership….

  18. Everhopeful
    March 11, 2020

    I blinking well wish that the BoE would listen to JR!
    BoE has been desperate to cut rates at the first opportunity.
    And left wing manufactured panic has handed it to them on a plate.

  19. Bob
    March 11, 2020

    So they’ve cut the base rate from diddly squat to one third of diddly squat.
    They should have kept their powder dry.

    The govt needs to cover employers for statutory sick pay, otherwise what are we paying NICs for?

    They should also suspend business rates, they are killing small businesses.

  20. Ian Kaye
    March 11, 2020

    Perversely Sterling is now up. A negative rate is perhaps inevitable

  21. Mike Wilson
    March 11, 2020

    We seem to being governed by fools. Businesses that will surely see demand collapse – pubs, some shops, cafes, restaurants, cinemas, sporting venues etc. – will need payment holidays, not a few quid off their interest payments. Meanwhile, savers get shafted again so there will be even less demand. You couldn’t make this up.

    What the government needs to do is manage the virus, but that, clearly, is a bit too tricky for them.

  22. Caterpillar
    March 11, 2020

    With one knee jerk reaction the BoE has just stressed out a bunch of elderly who use already meagre returns on savings to supplement their incomes. This is not the group the BoE should have attacked at this time, they are the most vulnerable group. (Again the small saver who attempts to buffer for unpredictable times has also been punished by the BoE).

    The BoE needed to be more targeted and more aware of the consequences of such a broad brush action. One cannot see the BoE unwinding this 0.5% cut in a few months time, it will probably take a year or two, the damage is done.

  23. Bob
    March 11, 2020

    Is Mark Carney still running the Bank?

    Someone tweeted this morning

    “nothing bolsters confidence as much as dawn panic cut in interest rates.”

    enough said.

  24. ian wragg
    March 11, 2020

    It’s all designed to frustrate Brexit and destroy our motor industry.
    The rest of the world must be looking on in amazement at the self flagellation of the UK government.
    Congratulations to the Huawei rebels let’s hope the ERG are equally responsive. Having a big majority shouldn’t be about foisting stupid measures on the country, HS2, Huawei, Hinckley Point and Carbon Neutral nonsense doesn’t give me much faith.
    I thought Cummings was in tune with the electorate.

  25. Martin in Cardiff
    March 11, 2020

    John, I don’t think that anyone need take lectures in “responsibility”, from those who militated to hand the most important decision regarding the future of this country to about the most ill-informed and manipulated electorate in the modern democratic world after the Americans, and without any of the normal checks and balances that would apply to the possible enormous constitutional change.

    1. jerry
      March 11, 2020

      @MiC; You mean like the electorate in the UK was manipulated back in 1997, as it was in 1975 and 1945? Next….

    2. Edward2
      March 11, 2020

      Presumably you are not ill informed nor manipulated Martin.
      Only other people.

      1. Martin in Cardiff
        March 12, 2020

        Read the whole of my post.

        If you are going to have a referendum on such matters then a) a proper course of action for either outcome needs to be planned b) there has to be a mechanism for dealing with constitutional problems according to international convention e.g. super majorities and a veto for the any constituent nation of the UK. c) a proper electoral entitlement – the Swiss system would have delivered a handsome Remain result. d) the ballot paper choice must not be between something defined and something which is not i.e. an unspecified future relationship with the European Union.

        1. Edward2
          March 12, 2020

          You lost
          Get over it.

  26. agricola
    March 11, 2020

    We need to see practical financial measures to alleviate the effect of the CV epidemic on individuals and on businesses, particularly small to medium businesses. Small and medium businesses are very vulnerable to cash flow. First there should be a basic law that no invoice payment is delayed more than 30 days. Then the banking system should in effect offer free money to any business needing it. Government have been living on this level of largesse for years, it needs extending. Payback should be waived until the crisis is over. Liquidity needs to be there for any organisation in need of it. Government having proved that it can live on free money could extend that thinking by creating a TAX /VAT holiday for all under threat. Time for some extended blue sky thinking.

  27. Lifelogic
    March 11, 2020

    Many people in Northern Italy are already dying due to a lack of ICU units and other medical interventions. Yet our government here still does not seem to be taking much action (either for extra emergency provision of these facilities or in taking measures to delay the viral spread so as to give the NHS more time to be able to cope). Surely nothing – the budget, Huawei, the economy etc. is as important as get this in place. Indeed getting this in place is vital for the ongoing economy anyway.

    When is the Boris Government finally going to get real? One infected person on the tube might perhaps infect many others on just on one journey with a single sneeze. Even if they do all wash their hands while singing happy birthday every ten minutes! Then these newly infected others will probably infect many more others in just a few days time. What part of exponential growth do these people not understand.

    How hard is it to make or get hold of ventilation or oxygen breathing devices I wonder?

    1. Martin in Cardiff
      March 12, 2020

      Not as hard as it is to get hold of many thousands of hospital beds, along with the trained staff to tend the ill and to use that equipment.

      We have a pretty minimal public sector in this country, exactly as you have demanded incessantly and vehemently on these pages.

      You should be delighted.

  28. Hope
    March 11, 2020

    JR, at what point will you say sorry for pursuing a mass immigration policy to increase GDP but has the consequences of destroying our quality of life? For example, your govt knew it was artificially increasing the population without the resources to cope.

    So we now have the current situation where the NHS is already overwhelmed and there is no possibility of it being able to cope with victims of corona virus. This means that not only will it fail those who fall victim to it, but the NHS will not be able to cope with those emergencies and life threatening emergencies that it would ordinarily deal with. A situation that was predictable but your govt chose mass immigration and GDP over our well being. At best this is incompetent and deliberately making us all unsafe. But when it is a first duty of govt. to keep us all safe you are still whitening about GDP and economics that Hammond, Osborne etc all failed to manage properly that has led to this dire situation. Instead of following Blaire’s policies and moving left your govt could have reversed it all over ten years!

    1. Martin in Cardiff
      March 12, 2020

      The failure of millions of British to make good and proper use of the educational opportunities offered to them while young is what has generally spoiled their quality of life, not the presence of people here who were generally more engaged in that regard but from elsewhere.

  29. Lifelogic
    March 11, 2020

    Boris Johnson just now the NHS is very well prepared (for this virus). So how many ICU best has it got free now and how many will they have in two weeks time. We might well need a few thousand in two weeks time.

    Have they decided which people will get these and which others will be left to die yet?

    Will someone explain to the absurd Jeremy Corbyn (and the foolish Theresa May) that the gender pay gap (he claims 17%) is entirely explained by the different jobs they choose, subject they study, work life balance choices they make, the fact that they take career breaks and choose to balance child care activities. Women without children actually have no gender pay gap at all.

    Anyway most of the money men earn is spend on the family anyway. Is he expecting women footballers to earn £200K per week as some of the male ones do too?

  30. Mark B
    March 11, 2020

    Good afternoon.

    I agree with our kind host, a cut in interest rates is not what is needed, especially as others (LL) have pointed out that lending and overdrafts are absurdly high.

    We need practical measures and there is much more here the government can do without looking to others to bail it out.

    1. Martin in Cardiff
      March 11, 2020

      What is needed are decisive, salient, effective measures to bring the virus under control, and for these to be highly visible.

      However, only a properly prepared, resourced, and organised State can do that.

      This country has been run by those possessed by a quasi-religious fervour for as small a state as possible, for a minimal public sector, and for everything to be ruled by the Bottom Line, so it is none of those things, and nor can it be with the needed rapidity.

      The world knows this, and so confidence is hammered.

      Throwing cheap money at the private sector – yet again – will only have superficial benefits, and possibly cause serious long-term harm, I think.

      But that is for what people have voted yet again, so they can only blame themselves.

      1. Edward2
        March 12, 2020

        More nonsense.
        The State is huge.
        Tax is higher now than at virtually anytime in the past.

  31. Steve Reay
    March 11, 2020

    Gove says , Brexit talk may have to stop due to Coronavirus, why? Us ordinary people have go to work , why not those negoiators? How will it look? Lions led by donkeys.

    1. Andy
      March 11, 2020

      Donkeys led by asses.

  32. JoolsB
    March 11, 2020

    The BofE has today lowered interest rates to an all time low of .25% and yet students are still paying over 6% on their mounting debts. Your Government should be ashamed of itself John. Why are you and your colleagues not demanding this rip off of England’s young is ended?

    1. Lifelogic
      March 11, 2020

      What would boost confidence is the Carney departure. But then the replacement seems to be someone from the FCA who idiotically thinks that banks should charge 40% or 78% interest rates on overdrafts regardless of the quality of the borrower. One size fits all. So he is clearly an economic and mathematically illiterate dope too. It seems he is a Queens’ College history graduate!

      A shame he is not a Queens’ College mathematician or physicist as these were usually quite sound on logic, maths and risk reward.

      1. Lifelogic
        March 11, 2020

        His doctoral thesis it seems was on “The impact of the Napoleonic Wars on the development of the cotton industry in Lancashire: a study of the structure and behaviour of firms during the Industrial Revolution”.

        1. hefner
          March 12, 2020

          What would you think of a doctoral thesis related to ‘Reason, Ridicule and Religion’ ooooh Great One?
          What was your own doctoral thesis all about, LL?

    2. Bob
      March 11, 2020

      The 6% interest on student debt is obscene.

  33. glen cullen
    March 11, 2020

    I like the business rate cut for retail upto £51k

    1. Bob
      March 12, 2020

      But only for retail, leisure and hospitality, for everyone else the burden remains.

      1. glen cullen
        March 12, 2020

        I agree, the business rate should be scraped for all types of business with rateable value less tham £51k

  34. Prigger
    March 11, 2020

    A Complete List of names of the scientists who predict 20% of the workforce suffering from the virus at any one time in the next year should be published. The statistics should only include those officially diagnosed.
    A separate list of those staying away from work “on advice to stay at home” over a helpline or phone call should be published. A breakdown of occupations for example those staying at home on a Local Authority work list where full salary is paid for sick leave.( including teachers)
    On the surface of it our new Chancellor is well meant but has not had a variety of work experiences.
    If there isn’t an ongoing 20% sick rate for the virus then a massive inspection of the scientific advice and, scientists should be entered upon with vigour and consequences.

  35. Howard
    March 11, 2020

    John you’re so full of BS think you know it all well not in my book..loser

    1. glen cullen
      March 11, 2020

      this isn’t facebook….if you have something to say make sure its constructive

    2. Lifelogic
      March 11, 2020

      Well he does not know it all. But he does very well indeed for an Oxford historian. He has been consistently right over very many years. If only the dire PMs and Chancellors we have suffered under (Major, Cameron and May) had listened to him.

    3. Fred H
      March 11, 2020

      Sir John probably thinks highly of you too. Detail criticisms welcome, abuse not.

  36. Andy
    March 11, 2020

    It turns out from the Budget that Labour did win the election.

    All that wonderful extra spending you will all be paying for!

    You must all be delighted at all the handouts.

    1. Travel Pageant
      March 11, 2020

      Didn’t you say you were going to live in EU Italy?

    2. gregory martin
      March 11, 2020

      Dear Andy,
      Absolutely, as one of your detested senior citizens, one can look forward to YOU having your ‘pips’ squeaked, hopefully to the point of you needing to work as hard and for as long as oneself. More than 53 years of penal taxation before you can say BOO!

    3. Edward2
      March 11, 2020

      Dammed if you do dammed if you don’t
      Make your mind up andy.

    4. Fred H
      March 11, 2020

      I have just had it confirmed I get nothing out of the Budget, and will not pay for any benefits handed out. You, on the other hand…

  37. John
    March 11, 2020

    Mark Carney still ruining the British economy up to his final days as Governor. He should have been dismissed in 2009.
    I notice the British government is breaking England into bitesized chunks so that it can throw us out with the rubbish in this budget.

    1. jerry
      March 11, 2020

      @John; England has been ‘bite sized pieces’ for millennia, the modern means is by Counties, in the past is was by kingdoms, such as Wessex and Mercier – your point being what?

      The new BoE Governor was also in the meeting, what is more Carney handed the press briefing to his successor to explain the detail from what i saw of the coverage this morning so I suspect this cut would have happened what ever and who ever was in post. It was also made very clear that the BoE acted in collaboration and in tandem with HMT today.

      Who is going to become the fall guy come Monday I wonder…

    2. Wackyfield
      March 11, 2020

      I hear there will be a Mayor of West Yorkshire who will gain power without any real democratic mandate and has been allocated loads of money in advance to do what?
      Waste it of course. Devolution to a virtual dictator no one asked for and the vast majority are opposed to.
      The Chancellor would do better if he loaded a truck and sat on the back throwing money out on the road. He could keep the Mayor’s salary as a tip for his good judgement.

  38. Hope
    March 11, 2020

    JR, tell us simple folk if exceptional measures are required why overseas aid still not changed?

    1. hefner
      March 11, 2020

      Because, simple folk, overseas aid is often not what is written on the tin. A good part of it does not get outside the UK and is spent on advisors/experts/dedicated think tanks here in Britain. Then another part, this one very difficult to estimate, is the grease that help some overseas UK contracts go down (on the tune of ‘Just a spoon full of sugar helps the medicine go down in a most delightful way’ Mary Poppins).
      Did you realise that some former DfID minister wanted to use overseas aid to help an Israel military field hospital in the Golan Heights.
      As some on this blog often go: Nuff said.

      1. jerry
        March 12, 2020

        @hefner; Your comment regarding DfID and the Golan Heights probably reinforces many peoples opinion that DfID is not fit for purpose, whether they support DfID or not!

        The department and those within are driven by idealists and political posturing, especially those of the UN such as their MDGs & SDGs for example, but more often than not without the deeper political insight that the FCO, DfIT or BEIS have in spades.

        Yes the DfID oils the wheels and conduct or commissions research but any Govt department can do likewise, as they did when ever international development was not a stand-alone or arms-length Ministry.

      2. Hope
        March 12, 2020

        Hef, Yes I did. But it still does not alter the fact many billions are wasted that could be used on more important priorities. Then of course the U.K. pays about £3.7 billion into the EU overseas aid as well. The EU like to spend on exoctic mating programmes for fish. Not good use of money I would suggest when taxation is at a fifty year high and publicmservices are dire.

        Unusual reply.

  39. acorn
    March 11, 2020

    Last time I looked, Bank’s Tier 1 common equity capital (CET1) was 15.3%. Hence, reducing the counter cyclical buffer element (CCyB) of CET1 from 1% to 0%, ain’t going to make a deal of difference JR.

    BoE monetary policy can do nothing for the economy in its present condition; forget central bank monetary policy as a tool to solve anything; and, stop blaming it for this government’s decade long neoliberal fiscal austerity policy.

    I am hoping that our new Chancellor actually knows how to use a fiat currency economic model, to maximise the use of the nation’s resources; both human and natural.

  40. Iain Gill
    March 11, 2020

    So the IR35 nonsense remains, and freelancers working away from home have to pay for business travel & hotels out of taxed money, while the outsourcers bringing in cheap foreign labour can pay expenses tax free, and get other perks like 1st year in the country free of both employers & employees national insurance!

    Wish there was a decent opposition to point out the madness of it all.

  41. Iain Gill
    March 11, 2020

    Oh dear a “New Labour” budget…

    How sad to see the Conservative party come to this

  42. Paul Freedman
    March 11, 2020

    At the time of writing, according to the Fed Funds Futures market, there is a 51% probability the Federal Reserve will further reduce its Fed Funds Rate target to 0-0.25% at the next FOMC meeting on March 18th. If the Fed Funds Futures market is correct, which its likely to be, the Fed will have effectively reduced the US lending rate from 1.75% to 0% in just 15 days. By contrast the BoE has only reduced the UK Base Rate from 0.75% to 0.25% today. We and the US are very likely facing recession so why has the Fed responded so proactively but the BoE, with all of the same data, reacted so slowly? I am yet to see the good in Mark Carney. In my opinion, he was only motivated as a show pony and the UK could have done a lot better

  43. Newmania
    March 11, 2020

    How dare you even speak the word responsible when you have cost us all so much :
    ” It is seriously concerning that the Government is looking at ripping up the fiscal rules. A Conservative Government should not implement debunked Keynesian stimulus theories. Some infrastructure and public services spending, as well as supporting individuals and businesses during Covid-19, is necessary. But in the longer-run, spending like a drunken sailor will not create a thriving entrepreneurial economy.”
    ( Adam Smith Institute )- we know why most of this was planned pre crisis and the deficits are eye watering based even on the happiest of Brexit landings
    What have you done ? We might just as well have elected that idiot in his Trotsky hat

    1. Richard1
      March 12, 2020

      That would have been far worse. I think we need to wait for November to really see the direction of travel. This was all about covid19.

  44. Will in Hampshire
    March 11, 2020

    It’s weird, for some reason I thought the Conservatives had won the last election, but I must have been mistaken as we’re about to go on the most enormous public spending binge.

  45. dewapoker
    March 20, 2020

    No matter if some one searches for his necessary thing, thus he/she wants to be available that in detail, so that thing is maintained over here.

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