When will Bank of England Governor finally take action on interest rates?
Ian L Handford wonders how the Bank of England Governor Andrew Bailey (right) can be so blasé about rising inflation...
FOR the Governor of the Bank of England, Mr Andrew Bailey, to apologise to consumers on the BBC Radio 4 Today programme, is to me astonishing. Bearing in mind this came just one day after he refused to reduce (or as he said “tame inflation”) and raise interest rates, it was an astonishing comment.
The Governor said on radio “he was sorry that households were being squeezed” and conceded that inflation was hitting everyone’s finances. One Sunday Telegraph journalist has already posed the question: “Is the Bank of England Governor who cried wolf over interest rates the right man for the job?”
Economists today prefer a low steady rate of inflation, yet during May 2021 the Governor stated “he wouldn’t hang around in terms of tightening monetary policy (increase interest rates) if inflation started to rise above its present 2% rate”. Today, in spite of conceding that inflation exceeds 3% the Governor (Chairman of the MPC) and his fellow directors have, so far, taken no action.
My first WMN piece about Mr Bailey was issued after the announcement in January 2020 that he was to replace Mr Mike Carney when he officially retired in April. Mr Bailey would then become the 121st Governor of the Bank when formally commencing the role on March 16th, 2020.
His appointment raised eyebrows in the City as Mr Bailey had until then been the Chief Officer of the controversial Government quango the FCA (Financial Conduct Agency), seen as a failing agency. The FCA had been set up by Government to be a regulating authority, charged with supporting and ensuring a healthy financial sector able to offer confidence to all private sector businesses, in the knowledge that a fair and competitive market place was being operated. It also had to ensure that general consumers were assured there was transparency in the open market system. Sadly, it failed to achieve either objective under the new chairmanship of Mr Andrew Bailey.
The debacle over the Carillion Construction Company and Woodford Equity Income Fund and its many subsidiaries plus the huge controversy over London Capital Finance Mini-Bonds and numerous Peer-to-Peer lending schemes, all surfaced during the new “watch” of Mr Bailey. It was with this background that there became huge speculation on whether or not his name should even go forward as a potential new Governor at the Bank of England.
By now voting against raising interest rates at the recent MPC in London this month, it is perhaps relevant we recall that as late as October this year the Governor was informing the City fathers that interest rates were likely to rise, saying “he will have to act”, which of course is exactly what he failed to do this month. Even Andrew Sentence (former member of the MPC) came out of retirement to say Mr Bailey is a “big communications failure – he needs to recognise that the slight nuances of any of his words are quite significant for the City market”.
He was right, many national lenders, eg HSBC, National Westminster Bank and Nationwide, were so convinced by the Governor’s comments that they pulled their best lending deals and even put up interest rates, all in advance of the November MPC vote. Now, even Dame Helena Morrissey (previously a contender for the Governor job) and a highly thought of successful City financier (as mentioned in my January 2020 WMN article) decided to comment on the debacle, saying: “There’s a danger now that policymakers at the Bank of England are seen as crying wolf and people won’t listen or take the statements at face value. There needs to be less thinking out loud if the Governor is to regain confidence”.
Prior to his appointment as Governor, Private Eye magazine proffered an alternative name for the FCA, calling it the “Fundamentally Complicit Agency” – seeing it, as did others, as an agency “not fit for purpose”, a situation that must not be mirrored at the BoE.
Having followed Mr Bailey’s progress during the last 18 months or so since his appointment, it is interesting today to reflect that most economists still prefer a low rate of inflation, although during May 2021 the Governor was stating he “wouldn’t hang around in terms of tightening monetary policy (i.e. increasing interest rates) if inflation started to rise above its present 2% rate”, which of course now has occurred without any action being taken by the BoE so far.
With virtually every aspect of all the costs of living rising continually, there will surely have to be a U-turn on interest rates soon, although if not, this still leaves the Government able to explore its own “emergency powers” to intervene.