Thursday, 9 June 2011

Bank of England do nothing on UK interest rates

That time of month again, the time they gather at Threadneedle Street to drink tea and do nothing. Transfixed in the headlights they are too mesmerised by the oncoming lights:

- The light of the end of US QE which will knock US inidices by at least 10%.
- The light of UK recovery number suggesting the 'recovery' has subsided.
- The light of the Euro debt crisis from which we are just a smidgen away from being embroiled in.
- The light of the boss of State owned Lloyds noting that his bank is still borked and needs continued life support.

There are no easy answers to any of this, but current policy of doing nothing has seen a retrenchment in UK prospects in 2011 - raising rates or more QE maybe the answer - doing nothing is fiddling whilst Rome burns.

7 comments:

Anonymous said...

Unfortuneately I think the heir to the Osbourne baronetcy is rather boxed in, he dare not raise interest rates as Maggie did because it will cost the government more to service its debt, he does not have the great inflow of cash from North Sea Oil that Maggie did, employment would plumet, and business would stagnate, those with house mortgages would suddenly find what seemed a good deal they would not be able to pay the extra interest and sell into a very depressed market. As an aside, I passed some new homes from £120K 5% deposit, a couple of weeks ago, houses seem to be spring up all over the place in the area where I live South Yorkshire. To be honest I do not envy Gideon, if he gets it wrong he and his party will sink without trace but if by some chance everything goes right they will be in for ever, all the spin aside heis back against the wall.

Blue Eyes said...

Not sure why doing "something" would be better than sticking with the current policy. Perhaps the Bank could give the market some stability by stating that rates will be at this level for at least twelve more months. That will give people something to work with at least!

CityUnslicker said...

Low interest rates are fuelling inflation as the pound is so weak. It's a terrible situation; note i am critical here of the Bank not the Government - there is an important difference.

Blue Eyes said...

Inflation is a result of past policy, how would raising rates solve the situation we are in now of slowing growth and shrinking money supply? Inflation is not high. Higher, yes, high, no.

Anonymous said...

Yes Blue Eyes, its high (lot higher than the offical figures), it will go a lot higher before this is done though.

Unslicker: "i am critical here of the Bank not the Government - there is an important difference."

Erm? what , can you explain that one.
The BOE is run by people appointed by the government is it not?
It is set up to do what the government wants while allowing the government to claim that it acted 'independently'?

I don't believe for a second that the BOE acts in a way that the ruling elite don't approve.

james c said...

Inflation is not due to weak sterling-the devaluation happened 3 years ago. It is due to the VAT rise and major rises in the price of several commodities.

Raising rates will do nothing about that.There are possible reasons for raising rates-slowing the economy or dampening the housing market, for example.
They do not seem relevant in current circumstances.

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