Securing energy supplies will also boost the pound
YET AGAIN, the Bank of England is acting too slowly. With the pound at new lows, Governor Andrew Bailey says he will wait until November to announce new measures, but that leaves weeks of turmoil to come.
A panicked response is never good, but the Bank has been underperforming for the past year at least, exacerbating our economic problems.
Slow to anticipate the inflation caused by post-pandemic demand, Mr Bailey’s team of so-called experts have been way behind the curve, keeping interest rates too low for too long.
Even last week, they managed to disappoint market expectations by raising rates not by a predicted 0.75 percentage points, but by just 0.5 per cent, thus doing little to bolster the pound against the dollar.
The US Federal Reserve, by contrast, has been more robust, opting for a 0.75 percentage point hike in its battle against inflation and being rewarded with a higher value dollar.
If Mr Bailey is to get on top of sterling’s decline, he needs to act even more decisively, with predictions of interest rates rising to 6 per cent next year. This will bring bitter pain to mortgage-holders, who face paying hundreds of pounds more every month to keep their homes.
AGAIN, this calamity is largely the fault of the Bank. If they had not kept interest rates close to zero for most of the past decade – thanks to previous governor Mark Carney – house prices would not have ballooned to dizzying heights, forcing ambitious home owners to take up ever bigger loans that would require frightening levels of repayments if rates returned to more normal levels.
The inevitable housing nightmare that Tory MPs and the Bank hoped to fend off for so long with ridiculously low interest rates has now finally come true. A low pound matters because the energy we need is priced in dollars, so this jump in costs will feed in to inflation just as the Government is using billions of taxpayer pounds to help shield families from rocketing fuel bills.
It is little wonder that Labour are making the most of the Tory cost-of-living squeeze and were rewarded with a 17-point lead in a poll this week. But the responsibility for the crisis must be shared with the Bank, whose forecasts and actions were inadequate to say the least.
But can we really believe that Labour would have handled this situation any better, being the party that called for longer and deeper lockdowns and even more public money spent on Covid and the NHS?
If interest rate rises are the short-term answer to the falling pound, however painful, then more medium-term action needs to be taken with our energy policy. Part of the reason the pound and euro are so low against the dollar is because the US is seen as a safer haven for foreign investors, thanks largely to it being energy independent, exporting gas and oil to the rest of the world.
If the UK is going to recover, it must embark on its own drive for energy independence to encourage a sustained bounce back in sterling as well as powering the growth that will deliver higher government revenues and pay down our debt.
Business and Energy Secretary Jacob Rees-Mogg is commendably ambitious, wanting to make the UK a net energy exporter by 2040.
No longer held back by netzero ideology, he is happy to make the most of our national wealth in carbon energy and has pledged to fully exploit North Sea oil and gas as well as
fracking. But it is not just the willingness we need, it is also practical changes to bureaucratic delays.
Tom Crotty, boss of chemicals giant Ineos, told me: “People ask how long will it take to get gas out of the ground and the answer is how long is it going to take to get planning permission? In the US, you can drill a well in two or three weeks, you can frack it in a week, so you’re in production within a month.
“It’s not the technology that holds you back, it’s the planning process.”
DESIGNATE shale gas as an energy of national importance and you can get it out of the ground faster. Such a bounty of home-drilled power would bring down inflation, help our hard-pressed manufacturing, and strengthen sterling.
In contrast, Sir Keir Starmer’s new big idea – which sounds a lot like Boris’s old idea – is to turn Britain into a green energy superpower, doubling down on the net-zero policies that have led us into the energy crisis we now face. Such a gamble on intermittent renewables will do little for the value of sterling and see us all poorer.
‘This calamity is largely the fault of the Bank of England’