No one but a fool would run an economy this way
The Bank of England's Monetary Policy Committee issued its quarterly report yesterday, coinciding with its interest rate announcement. The rate is staying fixed for now, but three of the nine members wanted an increase, apparently thinking that inflation caused by oil price increases, in turn caused by war, represent excess demand. . .
TheBank of England'sMonetary Policy Committeeissued its quarterly report yesterday, coinciding with its interest rate announcement. The rate is staying fixed for now, but three of the nine members wanted an increase, apparently thinking thatinflationcaused by oil price increases, in turn caused by war, represent excess demand in the UKeconomythat they must stamp out with an interest rate rise, when the exact opposite is true: the inflation is a sign of shrinking demand in the eocnomy as spending power is shifting to oil and we need a rate cut as a result. But what do these people know anyway? This is the first chart in their report and shows their forecasts for February, April and July this year:Those forecasts are wildly different. That indicates three things. The first is the Bank's failure to take a longer-term view: likemarkets, they appear to think Trump's words are more important than his actions, or what is happening on the ground. Second, the wild swings suggest events are more important than anything the Bank does, in which case the obvious question to ask is, why are they doing anything in that case?Third, if they can change their minds this often and produce forecasts with such variation over a period of a few months, why do they think their only currently available tool to control inflation, which is the base interest rate, changes in which are widely thought to take two years to have an impact, is an appropriate tool for the task they have been given?If you want evidence of this committee's irrelevance, but also of the harm it seeks to cause nonetheless, I think this chart and their clear intention to raise rates early in the autumn provide it. No one but a fool would run an economy this way. PDF of articleThanks for reading this post. You can share this post on social media of your choice by clicking these icons:There are links to this blog'sglossaryin the above post that explain technical terms used in it. Follow them for more explanations. You can subscribe to this blog's daily email here. And if you would like to support this blog you can, here: