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 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”.