16 June 2023 – yesterday’s press releases

  • Parliament mustn’t waste time debating Johnson report when families facing mortgage crisis
  • Hosepipe ban: Water bills should be discounted

Parliament mustn’t waste time debating Johnson report when families facing mortgage crisis

The Liberal Democrats are calling on the Government not to waste parliamentary time on Monday with a long debate on the Privileges Committee report on Boris Johnson, but to pass emergency support for families struggling with soaring mortgage rates.

Leader of the House Penny Mordaunt has announced that the motion on Johnson will be debated on Monday for up to six and a half hours. However, the Liberal Democrats argue that the report “speaks for itself” and should be approved without a debate, as was done with Margaret Ferrier’s suspension last week.

The Liberal Democrats argue the Government should instead bring forward urgent legislation on Monday to pass a package of emergency support for mortgage-holders and renters, as interest rates continue to soar.

The party is calling for a “Mortgage Protection Fund” to protect families falling into arrears or facing repossession as a result of soaring interest rates, as well as protections for renters including a national register of landlords and the temporary reintroduction of pandemic-era measures protecting renters from evictions over rent-arrears and extending the mandatory notice period given by landlords.

Liberal Democrat Leader Ed Davey said:

The Conservatives are consumed with sleaze and infighting and are doing nothing to help families who are being overwhelmed by soaring mortgage costs.

The country is in a cost-of-living emergency. For the Conservatives to devote a whole day to debating this report shows they are even more out-of-touch than we thought.”

We don’t need six hours of debate to determine whether Boris Johnson is a liar. Everyone knows he is, and the committee’s report speaks for itself.

Hosepipe ban: Water bills should be discounted

Responding to South East Water announcing a hosepipe ban from 26 June, Liberal Democrat Environment spokesperson Tim Farron MP has called for customers’ water bills to be discounted. He said:

Households are struggling enough with the cost of living, it is not right that they are made to pay in full for a service they are only receiving in part.

Instead of giving themselves multi-million pound bonuses, water company bosses should be discounting customers’ water bills throughout the hosepipe ban and investing more in fixing leaks that lose enormous volumes of water.

This Conservative Government has let these water firms put profit over people time and time again, but this exploitation cannot continue.

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38 Comments

  • George Thomas 17th Jun '23 - 8:55am

    Just to share the opposite point on view on supporting people with mortgages:

    “1/ Inflation. Mortgage payments are one of the main transmission mechanisms the Bank of England has to cool demand. Subsidising mortgage payments acts against that, making it harder to get inflation down. This is terrible economics and bad politics.

    2/ Distributional. Less wealthy non-homeowners should not be subsidising wealthier homeowners – particularly during a cost of living crisis.

    3/ Market distortion. Cheap money has fueled a house price boom, meaning home ownership is out of reach for too many. Subsidising mortgage would keep house prices artificially high, with various negative knock on consequences.

    4/ Fiscal. I couldn’t possibly do a thread without mentioning the dire state of the public finances. This would be a very bad use of very scarce fiscal firepower.

    Sharp mortgage increases are going to be very painful for millions, and politically very difficult for the Tories. But the politics and economics of intervening would be much worse / ENDS” (Tim Pitt, @TimPitt11, former adviser to Hammond and Javid).

    Furthermore, doesn’t it come from the same line of thinking as the following?:

    “Government will pay landlords 5 times more than it will spend on affordable housing in next 4 years The £58bn housing benefit bill dwarfs the £11.5bn Affordable Homes Programme, think tank New Economics Foundation has found”

  • Nigel Jones 17th Jun '23 - 3:50pm

    I agree that Parliament should provide opportunity for MPs to highlight serious issues involved in the former PM’s behaviour which go beyond partygate and there is a need for more effective handling of any minister’s lack of accountability and scrutiny in the House of Commons. The speaker, Lord Lindsey Hoyle, wrote an article in the ‘i’ newspaper clearly expressing the view that Boris Johnson had lowered the standards of the House of Commons, but it appears there were occasions when he was powerless to do enough about it. The previous speaker shouted about it more within the chamber but similarly seemed unable to stop it and was persecuted by government supporters.

  • Nigel Jones 17th Jun '23 - 3:57pm

    I agree with George Thomas about mortgages and would ask are we tending to become rather populist in the run up to the next general election ? Yes we can share people’s concerns but we must not ignore the bad housing policy of the Conservatives; e.g. this government’s ways of helping some people get on the housing ladder has only pushed up prices making it even more difficult for others and as we now might well see, getting those just getting on the ladder in a position where they cannot afford it.

  • So Tim wants to see stand pipes in the streets?
    Currently there is an amber warning through to midnight Monday for storms and abnormal rainfall.

    The current water shortage in the south east can largely be attributed to excessive development. Perhaps the way to get people to take potable water seriously is for it to be delivered daily in the same way milk used to be delivered…

    Perhaps, Libdems should block all new housing development until essential infrastructure has been enlarged to support it…

  • Paul Barker 17th Jun '23 - 8:24pm

    The point about interest rates is that they are just getting back to normal – they were kept artificially low for too long. Even now, “Real” interest rates are still strongly negative – a hidden Tax on Savers & a hidden Subsidy to people & organisations in Debt. Thats what Economists call a Moral Hazard – unintentionally discouraging Saving & encouraging Debt.
    When it comes to the question of Who & What was to blame for this mess A former Governor of The Bank of England has said that Brexit was partly to blame for our current Inflation. If he can say that why can’t The Liberal Democrats ?

  • Given inflation is an annual measure of prices I’d guess that most of the inflationary pressure from brexit occurred in 2016 (with the fall in sterling on 24 June) and in 2020 (when we left the EU. So brexit is a cause of current prices but not necessarily a large reason for current inflation. According to the BoE inflation is 80% the Russo-Ukrainian war, 10% Brexit and 10% covid. Although late to the show, the BoE really has no choice but to put interest rates up. If it’s possible that there is a silver lining from the Russo-Ukrainian war it may be that it has weaned us off cheap debt. The longer it went on the harder the coming off.

  • Peter Davies 18th Jun '23 - 7:01am

    “If it’s possible that there is a silver lining from the Russo-Ukrainian war it may be that it has weaned us off cheap debt.” Weaning the west off cheap fossil fuels would also be good.

  • Peter Davies 18th Jun '23 - 8:37am

    It’s a hallmark of Rishi Sunak’s own peculiar brand of economics that his response to peoples incomes no longer covering their bills has been government ‘help’ for specific bills. It’s the sort of economic nonsense you would traditionally associate with Labour but the response of all the other parties and much of the comentariat is that he isn’t doing enough of it.

    We should be pushing for more homes to make market priced rents affordable (and “Affordable” redundant) and we should have the courage to advocate redistribution of wealth and income at levels that would ensure everyone’s income covers a reasonable level of expenditure.

  • Peter Martin 18th Jun '23 - 10:11am

    ” I’d guess that most of the inflationary pressure from brexit occurred in 2016 (with the fall in sterling on 24 June) and in 2020 (when we left the EU.”

    The euro has also varied against the US$. It recently went below parity but has recovered by about 10% since. The pound also varies against both. It’s at 1.17 against the euro which is pretty much what it was during the Coalition years. It was even lower in 2008 when we were still in the EU.

    Take a look at the graphs on the link below. If you can come up with a workable theory to link cause and effect with currency movements and so predict what they will be in future, please let me know. I’ll then be able to switch to currency trading and give up my day job!

    Google {pound euro (or dollar) exchange rate}

  • Peter Martin. Your comments don’t negate mine. The 10% fall in sterling on 24 June 2016 was inflationary.

  • The more I think about Davey’s comments the more horrified I am. Bailing out mortgage holders would be unfair, unjustified and unaffordable. Bizarre comment indeed.

  • @Russell – Dave’s isn’t proposing to bail out ALL mortgage holders; only those who until they renew are benefiting from paying a lower rate than those on variable rate mortgages are currently paying.
    Given the expectation is that the BoE will continue to increase interest rates, new fixed rate deals will naturally carry a price premium over the current variable rate.

  • Roland. I don’t understand your comment. Why should those on lower rate benefit?

  • Peter Martin 18th Jun '23 - 7:44pm

    Paul Barker,

    “The point about interest rates is that they are just getting back to normal – they were kept artificially low for too long”

    Normal? Artificially low? It actually works the other way around. Interest rates are only ever at higher rates than 0% because the BoE decides they should be higher. The monetary committee decided on the 10th May that “Bank Rate” should be increased by 0.25 percentage points, to 4.5%. If they hadn’t so decided then it would still have been at 4.25%. If they hadn’t decided to increase them previously they would still have been at 4% or whatever.

    The point is that “the market” hasn’t pushed them up and the BoE then decides it needs to follow it. The BoE can set them to be ultra low, zero or even slightly negative, if it wants to. It recently set them to be 0.1%. So the only artificiality is caused by the intervention of the BoE in pushing up interest rates. Normal is 0% !

    https://moslereconomics.com/wp-content/uploads/2018/04/The-Natural-Rate-of-Interest-is-Zero.pdf

  • Peter Martin 18th Jun '23 - 7:52pm

    @ Russell,

    Are you sure the fall was exactly 10% after the Brexit vote? And are you sure that the pound has continued to be 10% lower than it would have been had the vote gone the other way? Not that I’m saying a lower pound is necessarily a bad thing. It was certainly too high at around the 1.60 mark in the early 00’s. This caused exporters a lot of problems. One good thing was that it helped keep us out of the euro. It would have been crazy to go in at such a high value.

    I agree with you in a way about ad-hoc interest rate relief. If Lib Dems are in favour of both using monetary policy as the prime method of inflation control and also handing over this control to the BoE they should accept the full consequences of their choice. This does mean letting householders go bust and potentially become homeless if they can’t pay the bills. This is how it’s supposed to work. Sticking plaster solutions are no solutions at all. They can’t have it both ways

    If they don’t agree with using monetary policy this way and handing over macroeconomic control to a unelected body they should say so. It’s only been a relatively recent fad, in historical terms, in any case.

  • @ Peter Martin Some facts – as published by the Economic Observatory, publication of the Economic & Social Research Council (22/02/21)
    _______________________________

    “Since the Brexit vote in 2016, the exchange rate of the pound against other leading currencies has fallen significantly. This seems to reflect a generally negative outlook among international investors for the UK’s economic prospects outside the European Union.

    At the start of 2021, the pound was approximately 15% weaker relative to the euro than it was on the eve of the referendum on the UK’s membership of the European Union (EU) in June 2016. Sterling was also 20% weaker than it was when the EU Referendum Act received Royal Assent in December 2015.

    Over the last five years, Brexit has been one of the key factors influencing exchange rate volatility and the value of the pound against other leading currencies. The effect of Brexit was particularly evident immediately after the referendum result, as sterling experienced its largest fall within a single day in 30 years. There were two further substantial and sustained falls in 2017 and 2019, bringing the value of sterling to new lows against the euro and the dollar in August 2019”.

  • Peter Martin 18th Jun '23 - 11:30pm

    @ David Raw,

    If you want exchange rate facts, you can get them easily enough if you can read a graph. You don’t need the some supposed higher authority in the form of the Economic Observatory.

    It’s a fact that the latest pound euro exchange rate is 1.17. Go back ten years and it also 1.17. Another fact.

    It’s been on or about this level since the 2008 GFC with the exception that it rose to around 1.36 in 2015. I’ve really no idea why it was lower before and neither do you. But, of course, you think you know why it lower afterwards!

  • @Russell = I agree!
    Suspect this is being used simply as an opportunity to throw mud at the government.

  • Peter Martin 19th Jun '23 - 8:36am

    @ David,

    One more point on cherrypicking data to give misleading impressions. A favourite tactic of climate change deniers BTW:

    “There were two further substantial and sustained falls in 2017 and 2019, bringing the value of sterling to new lows against the euro and the dollar in August 2019”.

    I really don’t know what your reference is saying about the exchange rates of 2017. I can’t see anything unusual in data. The pound looked relatively stable in that year. It started, in Jan ’17 at approx 1.17 against the euro and finished at 1.13 in Dec.

    There was a sharp fall to 1.06 on the 9th August 2019. But it can hardly be said to be “substantial and sustained”. It was 1.17 in May of that year and then rose again1.20 in Dec.

    Again I’m offering no explanation of the erratic movements in currency markets. Can it be that the “markets” thought that Brexit was a terrible idea on the 9th August ’19 but a somewhat better idea on the 13th Dec?

  • Peter Martin. Sterling fell 8% in the wee hours of 24 June 2016. I think it’s inarguable that that was brexit. It fell a further 6% in the following days. My point was that, although we are still suffering higher prices for imported goods due to brexit, that is not reflected in 2023 inflation numbers, given inflation is an annual measure.

  • Peter Martin 19th Jun '23 - 11:09am

    Rusell,

    8% and 6% are quite large changes. So you’re right in saying that this can be put down to “market” surprise at the result of the referendum. What we don’t know, and will never know, is whether we would have seen a fall, albeit a slower fall, in the value of the pound even if the result had gone the other way. The pound has been lower than it currently is against both the euro and dollar even before the prospect of leaving the EU was considered a serious possibility. We’ve also seen much larger falls which certainly can’t be dismissed as a temporary blip.

    This result didn’t change anything immediately. The trading arrangements remained exactly the same until we left the EU three years ago. There was no similar drop when we did actually leave.

    We should also be wary of assuming a “higher the better” value for the pound. If we want a viable manufacturing sector we have to be able to compete with imports and be able to export our own products. We tend to overlook this in the UK. It’s far too much about the price of a holiday in Spain and not enough about the balance of the economy generally.

  • Peter. I don’t see your point. You don’t think Brexit caused a fall in the value of sterling?

  • Sterling took an big hit versus the Euro and Dollar during the 2008 financial crisis . Immediately prior to the crisis sterling was trading at around 1.50 euros. Some of that ground was recovered against the Euro (but not the dollar) during the coalition years as a consequence of the Eurozone crisis. Trading in sterling opened at 1.29 in 2015 and closed the year at 1.36 peaking at 1.42 Euros at the end of November 2015 and averaging around 1.34. The pound began to weaken against the Euro as the Brexit referendum approached and fell catastrophically to 1.20 at the end of June 2016 reaching a low of 1.09 in August of 2017 and recovering to slightly below the post-Brexit exchange rate in the years thereafter to today’s rate of 1.17.
    The Economic Observatory are perfectly right to say ““There were two further substantial and sustained falls in 2017 and 2019, bringing the value of sterling to new lows against the euro and the dollar in August 2019” as you can see from the Bank of England charts GBP/EUR rates recorded by the Bank of England 1999 – 2023
    Mark Carney was right about Brexit and right now Brexit to blame for soaring inflation

  • Inflation is ultimately too much money chasing too few goods. Supply-side shocks like the Russia-Ukraine war fall out of inflation figures after 12 months and no longer impact on CPI figures as the new higher prices become embedded into inflation measures.
    Monetary inflation resulting from the devaluation of sterling via exchange rates, deteriorating terms of trade and excess credit creation is a feedback cycle. As more money is created to buy the same quantity of goods the value of that money continues to fall feeding into the inflation cycle. The only tool to address this issue is higher interest rates bearing down on money creation and curtailing spending across the economy.
    That has a direct impact on new and existing mortgage holders. To address the impact on mortgage holders, financial institutions interest earnings from loans secured on property holdings should be subject to a Land Value Tax and those taxes form the basis for a “Mortgage Protection Fund” to protect families falling into arrears or facing repossession as a result of soaring interest rates, as well as protections for renters.”

  • @ Peter Martin, you tell me, “You don’t need the some supposed higher authority in the form of the Economic Observatory”.

    Sorry, Mr Martin, but I’m afraid the views of the Economic Observatory on the consequences and impact of Brexit have a fair bit more clout and are much more persuasive than the views of your good self, ….. as are the views of Mr Mark Carney.

    You say, “It’s a fact that the latest pound euro exchange rate is 1.17. Go back ten years and it also 1.17. Another fact”.

    Again, I’m sorry, but the assumption that exchange rates have continued in a straight line is equally unpersuasive. There has been one heck of a high price to pay by way of higher interest rates for the exchange rate to end up where it started.

  • Peter Martin 19th Jun '23 - 10:50pm

    @ David Raw,

    You can’t sensibly make an argument from authority when it comes to Ecomomics. Economists are, for whatever reason, incapable of reaching a conclusion. My favourite economist is Prof Bill Mitchell but would you accept his take just because he’s a Professor? I doubt it.

    He thinks Brexit is working! Well, at least as good as can be expected with a bunch of neoliberals in charge.

    https://billmitchell.org/blog/?p=60860

    “Again, I’m sorry..” OK Apology accepted 🙂

    ” but the assumption that exchange rates have continued in a straight line…. There has been one heck of a high price to pay by way of higher interest rates for the exchange rate ..

    There were all sorts of wild forecasts prior to Brexit these haven’t happened quite yet.
    Have you bothered to look up what interest rates are in the USA and EU and compared theirs to ours? If you had you might have found:

    “US Federal Reserve officials have announced a pause in interest-rate hikes, leaving rates at 5% to 5.25% after more than a year of consecutive rate increases.”

    Maybe not quite so bad in the EU but it’s close.

    Accordingly, the {ECBs} interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased to 4.00%, 4.25% and 3.50% respectively, with effect from 21 June 2023

  • This Daily Mirror article outlines why Britain is experiencing higher inflation than other comparable developed economies UK inflation nightmare – why Britain is suffering more than any other major economy
    “Households across the UK will be hit with the biggest rise in living costs of any major economy this year – it [inflation] takes longer to come down here than in any other G7 nation.”
    “Brexit has also been cited as a factor. UK households have paid an extra £7billion to cover the extra cost of trade barriers on food imports.”
    “Whatever anyone says, Brexit is one issue that has pushed prices up. And more post-Brexit changes this year could cause more problems when it comes to imports.”
    “Our predicted 6.9% increase for 2023 compares with the 5.7% tipped for the Eurozone, just short of 3.9% in the US, and less than 2.8% in Japan.”

  • Peter Martin 20th Jun '23 - 7:51am

    @ Joe,

    It’s interesting that you are tipping Japan to have the lowest inflation. All other central banks have been increasing interest rates to try to curb their inflation problems, but the BoJ still has a -0.1% rate on short term borrowing. At the same time that everyone else is fretting about levels of their National Debt being around the 100% of GDP mark, the Japanese seem relaxed about their debt level of 260% of GDP.

    Maybe we ought to be reading the same textbooks?

    I’m always puzzled about claims that we have more food price inflation than anywhere else, but yet when we do travel to it often doesn’t look that way when we try to buy anything! Norway has oil but which country has the most expensive petrol prices? Dublin is the home Guinness but there won’t be much change from a 10 euro note when you buy a pint in Dublin bar.

    This is a quote from Reuters:

    “The end of free movement of workers from EU countries has contributed to a shortage of staff faced by many employers that is more acute in Britain than in many other economies and which has pushed up wages and ultimately prices for consumers.”

    On the one hand we have Lib Dems, for all the right socially conscious reasons, calling for the lower paid to be paid more. But on the other, you want free movement back so they can be paid less! Go figure that one!

  • Peter Martin 20th Jun '23 - 8:18am

    Russell,

    “I don’t see your point. You don’t think Brexit caused a fall in the value of sterling?”

    What do you mean by Brexit? The vote in June’16 or actually leaving the EU three years ago?

    Obviously there was a market reaction in the days following the Jun’16 vote. It was probably similar to the effect on the share price of a company when some unexpected news is announced. “Markets” don’t like uncertainty, as is often said. The question arises of how much of these abrupt short term changes affect prices and exchange rates in the longer term. IMO probably not much – but of course there is no way of proving that.

  • @Joe re ”Inflation is ultimately too much money chasing too few goods.”

    So given the current situation is insufficient money (in people’s incomes) to pay for the essentials (before the BoE started to increase interest rates), what we are seeing can’t be inflation and hence the traditional knee jerk remedy of raising interest rates can’t be the remedy.

    Inflation is an intrinsic part of the current economic model and the mindset behind it; change the model and no inflation. For example, 40 years ago I brought and consumed one loaf of bread a week, I still purchase and consume a loaf of bread a week = where is the inflation and the cause of inflation?

  • Peter Martin,

    Japan has been an outlier for some time following its deflationary collapse in the early 1990s. FocusEconomics highlights demographic and low demand as principal issues constraining inflation in Japan Why is inflation so low in Japan?
    “Soft demand is partly stemming from limp wages, which contracted year on year in April in real terms for instance. The rise in the number of part-time and contract workers to over a third of all jobs, and unions’ focus on job security over higher pay, are key drivers behind low wages. Moreover, demand is also being dampened by the aging and declining population, which shrank by over 300,000 in 2021 according to IMF data.”
    “Prime Minister Kishida has made boosting wages a key policy priority. That said, his call for large firms to raise wages by 3% this year during the annual shuntō wage negotiations fell on deaf ears, with companies eventually agreeing a rise of a little over 2%. Looking ahead, wage growth is set to remain meek despite the government’s best efforts, due to the practice of negotiated annual pay hikes and a large pool of irregular workers. This will feed through to low inflation in turn—and a continued need for highly expansionary monetary policy. As such, Japan’s economic exceptionalism shows no sign of ending.”

  • Roland,

    interest rate hikes are aimed at core inflation excluding that element of price increases generated by exogenous events outside the control of national government such as imported food and energy The Bank of England’s persistent inflation problem
    The £2 coin has halved in value since 1998 based on inflation measures. £2 would have bought 4 loaves of bread in 1998 against 1 today; 2 pints of lager against 0.4 today or 1 big mac against 0.4 today The £2 coin turns 25: It’s HALVED in value since it came into circulation
    Prices barely rose in the century after the battle of Waterloo while wages slowly rose as the industrial revolution gathered pace. Inflation was unleashed in WW1. John Maynard Keynes described the situation in Europe in The Economic Consequences of the Peace:
    “The inflationism of the currency systems of Europe has proceeded to extraordinary lengths. The various belligerent Governments, unable, or too timid or too short-sighted to secure from loans or taxes the resources they required, have printed notes for the balance.”
    Britain went in the opposite direction after the Great War with the Geddes Axe in 1922 causing a deflationary depression in the 1920s that lasted into the mid 1930s before robust economic growth was restored with mass housebuilding projects and new industries such as chemicals.
    What is needed today is sound money policies and tax reform to capture economic rents (including land rents and mortgage interest from loans secured on land) for the public good and ensure a more equitable distribution of incomes across the economy.

  • Peter Martin 20th Jun '23 - 3:52pm

    @ Joe,

    ” £2 would have bought…. in 1998….. 2 pints of lager against 0.4 today”

    As someone who likes a pint now and again this statement, lager being £1 per pint in 1998, jumped out at me as being way off. I was thinking it was more like £1.50 but perhaps this was in the cheaper North. But anyway the reference below says £1.90 per pint.

    I suspect your other examples are similarly incorrect.

    http://barclayperkins.blogspot.com/2018/01/average-uk-draught-beer-prices-1973-2017.html

  • Peter Martin,

    The source given in the linked article is Source: ONS, Tesco and BigMac Index/local McDonalds menu as at 2 June 2023 via M&G.
    A pint of draught lager would have been more like £2 in London in 1998 and £5.50 today. But, as long as a consistent source of data is used by the authors for their comparison the relative changes will be valid. The point being made remains the same – that the pound has almost halved in value over 25 years. Full-time median annual earnings were reported at £17,500 in 1998 versus £33,000 today Median annual earnings for full-time employees in the United Kingdom from 1999 to 2022. With wage growth flat-lining during the pandemic and inflation getting into double-digits, real incomes are being squeezed and living standards declining even before considering the impact of the very high rises in residential rents and mortgage interest payments we have been seeing.

  • Peter Martin 20th Jun '23 - 6:50pm

    @ Joe,

    OK It still should be *1* pint of lager vs 0.4 today.

    70/25 = 2.8 which gives average annual inflation as a % over the 25 years. This is obviously slightly higher than the 2% target rate given to the BoE. If the rate had been met exactly the doubling time would be 35 years.

  • @Joe ” interest rate hikes are aimed at core inflation”

    Well it looks like once again the numpties on the BoE monetary committee will increase interest rates, muttering about core inflation, but unable to give any real detail to support their decision. However, a reading of the ONS data shows the basket of figures used to derive “core inflation” are arbitrary. So secondhand car prices are increasing, so what? Communications bills have increased because the current figures include the mar/apr above inflation increases of 15% permitted by Ofcom, in part the price increase is also attributable to the increased cost of electricity (telcos buy on the open market rather than generate their own) and the investment necessary for 5G (a technology that allows telcos to get more out of the airwaves and thus support more users). Health, no real information from ONS to permit a deeper dive, but suspect this also is due to supply issue s due to government under investment.
    So I see no real increase in “core inflation” that justifies yet another inflation creating interest rate rise.

  • Peter Martin 22nd Jun '23 - 2:53pm

    @ Joe
    Yes, we know the theory. When Thatcher came into office in 1979 she pushed up rates sharply. In the early 80’s we had a recesssion as the economy crashed. The same thing happened a decade late after the ‘Lawson’ boom. An sharp increase in interest rates followed by a deep recession in the early 90’s.

    We didn’t have a ‘soft landing’. Instead we had a crash.

    At the turn of the millenium we saw the same again except, perhaps, this could just about be described as a hard landing ( remember what was known as the ‘tech wreck’?) rather than a crash. Move on another 8 years and again interest rates were sharply raised. This time we had the mother of all crashes! Fast forward 15 years and the neoliberals don’t seem to have learned anything. If they carry on as they are we’ll end up with the mother and the father of all crashes.

    The mechanism is fundamentally flawed. If the Government spends more into the economy the effect has to be reflationary, or inflationary as Roland has just said. Spending more in interest payments is somehow considered to be the exception to the rule by neoliberals. However, monetarism only ‘works’, if that’s the right word, by creating ever more private debt which turns into bad private debt as interest rates rise making repayments become ever more unaffordable.

    Once the bad debts get to a certain level the avalanche comes crashing down.

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