Is­sue of the week: the Bank lifts in­ter­est rates

A his­toric mo­ment in the na­tion’s eco­nomic his­tory feels more like a damp squib

The Week - - City -

“The last time the Bank of Eng­land raised in­ter­est rates, Tony Blair had just stepped down as PM and North­ern Rock was still a go­ing con­cern,” said The Times. More than ten years on, the Boe’s Mone­tary Pol­icy Com­mit­tee (MPC) has fi­nally moved again, im­pos­ing a quar­ter point hike that takes the base rate to 0.5% “To sug­gest the move rep­re­sents a re­turn to pre-cri­sis norms would be ab­surd”: of­fi­cial rates are still more than five per­cent­age points be­low their lev­els back then; and a lot has hap­pened with mone­tary pol­icy since, in­clud­ing a mas­sive pro­gramme of quan­ti­ta­tive eas­ing. The MPC, which voted 7-2 for the rise, in­di­cated this is not “a one and done” de­ci­sion. That “for­ward guid­ance” seems un­wise, said the Fi­nan­cial Times. There is sim­ply not enough ev­i­dence of growth and un­der­ly­ing in­fla­tion­ary pres­sure to sup­port “a sus­tained cam­paign of tight­en­ing”.

Non­sense, said Fraser Nel­son in The Spec­ta­tor. “Ever since the Brexit vote, there has been much hy­per­bole about the un­der­per­for­mance of the UK econ­omy when, in fact, em­ploy­ment has soared to ever greater highs, and eco­nomic growth has steadily con­tin­ued.” There is no need for emer­gency rates, and there hasn’t been for some time. Gov­er­nor Mark Car­ney has “al­lowed his Brexit gloom to cloud his judge­ment”, but his po­si­tion has

In the “long fal­low pe­riod” since the last hike, there was an ex­pec­ta­tion that when the rise came, it would be “greeted as good news”, said David Smith in The Sun­day Times. “But the idea that mone­tary pol­icy would be tight­ened only af­ter aus­ter­ity was over and done with has taken a knock.” This was a “bad news” rise, to likely be fol­lowed by a “bad news Bud­get”. Econ­o­mists at both the Bank and the Of­fice for Bud­get Re­spon­si­bil­ity “share the same gloom about pro­duc­tiv­ity”, which is blight­ing pub­lic fi­nances and un­der­min­ing living stan­dards. “Un­til the econ­omy breaks out of it, there will be plenty more bad news to come.” be­come im­pos­si­ble to sus­tain. “You wait ten years for a rate rise and, when the mo­ment fi­nally comes, the tim­ing feels com­pletely ar­bi­trary,” said Nils Prat­ley in The Guardian. This hike re­verses the emer­gency cut that fol­lowed the ref­er­en­dum. When the down­turn then didn’t ar­rive, “it would have been log­i­cal” to re­vert to 0.5% ear­lier. Yet the Bank has now “pushed the but­ton” when busi­ness in­vest­ment is slug­gish, con­sumer con­fi­dence is low and in­fla­tion wor­ries look less se­ri­ous. The UK is “in the very odd po­si­tion” of hav­ing cut rates a year ago “to deal with a Brexit whack that didn’t hap­pen, but now rais­ing them when the risks to the econ­omy feel more real and im­me­di­ate”.

Car­ney: has Brexit gloom clouded his judge­ment?

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