Bonheheaded rate rise by BOE – they know not what they do

Just been on BBC Newsnight arguing the rate rise is a disaster for the Tories and the country

I am a bit slow to this as I went fishing this morning and caught a dozen snook – biggest 26 inches (*2)…Sanibel slowly recovering from a shock but at least the island and our fishery are going in the right direction unlike the UK economy.

I did an interview on LBC with James O’Brien and just now on Sky News and am about to go on Times Radio discussing this madness. Also chatted with the excellent Heather Stewart on a story she is writing.

The reason UK inflation is higher than elsewhere is due to Brexit that has frozen supply chains.  I chatted with the great John Kay the other day when I was in Glasgow celebrating the Smith tercentenary and neither of us could come. up with any other explanation.   Everyone was hit by covid and Ukraine war disruptions to global supply chains and higher energy costs.

The UK also is still having to pay the moron premium as a result of the Truss/Kwarteng trickledown lettuce disaster.  Markets do not trust UK politicians or their central bank.  Currently UK govt 10-year borrowing costs are above what they were under Truss (4.40%) and higher than Italy (4.12%), Greece (3.72%); Ireland (2.9%); Germany (2.48%); USA (3.78%) and Japan (0.38%). Contrary to the nonsense Cameron and Osborne spewed at the COVID inquiry this week their totally unnecessary austerity, with the sole purpose of hurting poor people- did not fix the public finances, caused Brexit destroyed the British economy and made the country hugely vulnerable to a pandemic and subsequent oil shock.

I just heard Sunak have the temerity to say all will be fine trust him – more nonsense.  I wouldn’t trust a word he says – this is just political wishful thinking.  Bailey and the MPC have already destroyed whatever small hope there was of the Tories winning the next election;  collapsing house prices and a tanking economy after 13 years of Tory misrule seem likely to get them what they deserve = political oblivion.

So today for the thirteenth time in a row the utterly clueless MPC seven – Bailey, Broadbent, Cunliffe, Haskel, Mann, Pill and Ramsden – presumably none of whom have mortgages decided to destroy the housing market and crash the economy.  Housing foreclosures and unemployment presumably don’t apply to them or to the four banking advisers to Jeremy Hunt – Rupert Harrison who was Econ adviser to Slasher Osborne; Sushil Wadhwani, Karen Ward and Gertjan Vlieghe who doesn’t think it is the job of economists to spot recessions.  None know anything about or likely care about the wellbeing of the woman on the Mile End Road omnibus.

Of particular note in the statement is also that there is no evidence that inflation expectations are de-anchored.  It remains totally unclear why they raised rates given they said that “CPI inflation had been expected to decline to a little above 1% at the two and three-year horizons, materially below the 2% target.”  That was also what was shown in the inflation forecast in the May Monetary Policy Report.  Both of which are consistent with rate cuts.  Policymakers should not respond to yesterday’s data as monetary policy takes a time to have effects.   Based on their own analysis the MPC should be cutting rates…!

Thankfully there were two dissents from Dinghra and Tenreyro who care about ordinary people and that had it spot on.  The big concern is that this is Silvana’s last meeting and she is about to be replaced by Catherine Mann’s pal –  Meghan Greene an FT journalist (the last one Richard Lambert struggled) – who looks supremely unqualified (no PhD –  presumably another dumb hawk.  But I may be wrong as she thinks Brexit bad which may well be her saving grace.

Here is what the two dissenters said

“Two members preferred to leave Bank Rate unchanged at 4.5% at this meeting. There were two main factors underlying their votes. First, as the energy price shock and other global cost-push shocks continued to reverse over the course of 2023, goods price inflation should fall sharply, which, with some lag, would reduce associated persistence in domestic wage and price setting. In contrast with the strength in recent outturns, forward-looking indicators were pointing to material falls in future wage and price inflation. Second, the lags in the effects of monetary policy meant that sizable impacts from past rate increases were still to come through. This included additional rate increases carried out in recent months, which would more than offset any additional persistence implied by the latest data. The current setting of Bank Rate would therefore be likely to reduce inflation below target in the medium term. Recent substantial increases in market yields would accentuate this, as they would mainly affect inflation in late 2024 and beyond, by which point energy price falls from their peaks and past rate rises would have lowered inflation significantly. “

According to the MPC (Para 9)”The median respondent to the Bank’s latest Market Participants Survey (MaPS),, now expected CPI inflation one and three years ahead to be 3.1% and 2.2%.  So why raise rates?

Clearly higher inflation is harmful but the danger is that to rid ourselves of it isn’t costless.  in wellbeing terms a 1pp rise in unemployment rate lowers wellbeing six times more.  The best analogy is doctor says I have good and bad news.  The good news is I have fixed your ingrowing toenail.  The bad news is I had to amputate your leg to do it.  The Full Monty comes to mind.  Losing a job is a major source of unhappiness.  How are the 1.4 million mortgage holders going to cope as they come off lower fixed rates and have to pay 6% or maybe more.  Defaults are inevitably set to rise.  Car loan defaults are also set to rise as are bankruptcies.

The British people are rightly indignant about the utterly incompetent Governor of the Bank of England (the Plank of England according to the SUN) who called for workers to lower their real wages even more – I note that real total weekly pay today is about the same as it was in 2007 and isn’t causing inflation.  It is unclear why he didn’t say that firms and CEOs – who have made out like gangbusters under the Tories – should swallow the cost rises – time to give back.   But he represents capital not labour.  Time for him and the rest of the MPC incompetents to consider their position.  time for the workers to stand up and say enough of the incompetence and lies.

A very bad day for the UK.

PS I am still off twitter who have never explained what I was suspended for but a twitter less world is better,….more time for fishing and the grandkids – but come and sign up to my Economics of Walking About blog

Danny B