Tag Archives: bank of england

Paul Reynolds

Economic crisis: problems and remedies

By Paul Reynolds | Tue 12th September 2023 - 8:26 am

There’s an economic crisis underway. Several policy motions at Lib Dem Autumn Conference make reference to economic problems. The government’s current industrial strategy (‘Plan for Growth’) runs to 112 pages and reads more like an argument against reform rather than for it; perhaps fearful of being accused by the tabloids of ‘talking down Brexit Britain’ .

UK economic problems are deep-rooted; some even hundreds of years old. Political parties of course share the blame but that’s only a small part of the story. Perceptions of problems and remedies have changed over the many decades, independent of political oscillations. But we will need clarity and deep thinking beyond political partisanship to extricate ourselves.

The symptoms are all around us. Disposable income is collapsing as mortgage payments, rents, energy, food prices, and now taxes, are all rising. Credit card debt is accelerating. Investment is in serious decline; since 2019 British businesses have invested less, as a percentage of GDP, than any other major economy. The Bank of England forecasts that business investment will further fall by around 2 per cent in 2024. By most measures GDP performance is the worst in the G7. UK debt sustainability is worsening. Debt service is set to exceed total NHS spending within three years. Tax revenues are just a third of GDP, and only half the population pay income tax.

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Michael Berwick-Gooding

Can the UK recession be avoided?

By Michael Berwick-Gooding | Fri 13th May 2022 - 10:42 am

Just before polling day the Bank of England published the May Monetary Policy Report as well as increasing the Bank Rate to 1%. They expect the Bank Rate to continue to increase and peak at 2.5% by “mid-2023”. They state, “That predominantly reflects the significant adverse impact of the sharp rises in global energy and tradable goods prices on most UK households’ real incomes and many UK companies’ profit margins.” They expect unemployment “to rise to 5½% in three years’ time”.

They state, “CPI inflation is expected to peak at slightly over 10% in 2022 Q4, which would be the highest rate since 1982”.

“Total real household disposable income is projected to fall in 2022 by the second largest amount since records began in 1964 before picking up thereafter” they forecast. Total demand in the economy will fall below total supply by the fourth quarter of this year. They quote an ONS survey of March where 42.5% of people, “said they had cut spending on non-essentials” due to lower real incomes.

This means that people will be able to buy fewer things. Demand for items will decrease. This leads to businesses producing less and unemployment increasing.

The Monetary Policy Committee produce different projections based on different assumptions. Their main projections are based on the assumption that the Bank Rate “rises to around 2½% by mid-2023, before falling to 2% at the end of the forecast period”. However, they also state that, “In projections conditioned on the alternative assumption of constant interest rates at 1%, activity is projected to be materially stronger than in the MPC’s forecasts conditioned on market rates. As a result, unemployment remains close to its current rate over the forecast period, instead of rising by around 1½ percentage points. CPI inflation is forecast to be significantly higher, with inflation projected to be 2.9% and 2.2% in two years’ and three years’ time respectively.” Also economic growth in the second quarter is higher – in 2023, 0.3% compared to 0%; in 2024, 0.6% compared to 0.2%; and in 2025, 0.9% compared to 0.7%. With their main projections they forecast negative growth of 0.2% in the first quarter of 2023 and 0.8% in the third quarter. Also with this forecast it is likely that economic growth in 2023 will be either zero or close to zero.

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David Thorpe

Labour’s Bank of England plan is based on ignorance

By David Thorpe | Mon 25th June 2018 - 8:07 am

I am about 99 per cent less politically engaged now than was I was even three years ago, mostly because I think all parties lack true radicalism right now, so I find the endless rehashing of each party’s greatest hits albums tedious in the extreme.

But this week Labour did pop up with an idea that tempted my focus away from the books I’ve been meaning to read, and the friends I’ve been meaning to meet, when they proposed shifting the Bank of England to Birmingham and changing the central bank’s mandate to target productivity.

The first idea is based on the …

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Central Bank Independence

By Michael Cooke | Mon 9th November 2015 - 1:06 pm

 

Support for multilevel governance seems a prerequisite for any Lib Dem. Devolution from the centre to the periphery, from Westminster to Holyrood and the Welsh Assembly is one example. There has also been devolution upwards to the supranational institutions such as the EU Statesman are no longer the preserve of government; governance is now very much a fixed concept.

However, there has been devolution or delegation to other institutions besides devolved bodies and the EU. The Bank of England’s independence is an interesting point in case. If LDV readers do support Central Bank Independence as a theoretical concept in the abstract, then its internal consistency should also have an external consistency when applied to the specific case of the Bank of England.

At this point, I would really like to start a debate on the following:

What should the size and scope of the Bank of England’s remit be?

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George Kendall

Is evidence-based policy losing out to populism?

By George Kendall | Thu 10th September 2015 - 3:20 pm

Populism always sounds good, but in the long-run it usually hurts those it is supposed to help.

In the UK, interest rates used regularly to be cut to stimulate an artificial boom before an election. This was good for the ruling political party, but the country paid a heavy price later. In the nineties, the Liberal Democrats championed the idea of making the Bank of England independent, and, in 1997, Labour implemented the policy.

As a result, inflation has been controlled, and business and international investors have more confidence in the UK. It’s no panacea. It didn’t stop serious mistakes being made over bank regulation. But, I think, it’s proved a real success.

In 1997, the Labour party proposed a National Minimum Wage. Many were deeply concerned that, by not allowing the existence of low paid jobs, this policy would price some low skilled workers out of the job market.

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The Voice

Vince on Scottish independence: RBS would ‘inevitably’ move to London

By The Voice | Wed 5th February 2014 - 9:45 pm

It’s not often we hear from the Lib Dem business secretary Vince Cable on constitutional matters. But today he appeared before Parliament’s Business, Innovation and Skills Committee to discuss the implications for business of Scottish independence, ahead of September’s referendum. Here’s what he said (via the BBC):

RBS would “inevitably” move its headquarters to London if Scotland votes for independence, UK Business Secretary Vince Cable has claimed. Mr Cable told a committee of MPs that the bank would want to be based where it was “protected against the risk of collapse”. …

William Bain, Labour MP for Glasgow North East, asked

…

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Bill le Breton

Opinion: The Bank of England’s Independence – the Law

By Bill le Breton | Sun 15th September 2013 - 12:01 pm

Political RavishmentAccording to the Independent, Nick Clegg wants to take on the ‘left’ in his Party.

In doing so he accuses the Social Liberal Forum’s amendments to the economics motion as “ending the Bank of England’s independence by ordering it to do more to create jobs” and “tearing up the fiscal mandate.”

Let’s deal with the first accusation. The 1998 Bank of England Act granted the Bank independence to set interest rates. That is instrument independence. However, the remit for the Bank is set by the government and so The Bank does not have goal independence, it takes its goals each Spring from the Government.

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Rob Blackie

Opinion: Keep the Bank of England Independent

By Rob Blackie | Sun 15th September 2013 - 8:01 am

Conference on Monday will debate an amendment from the Social Liberal Forum (SLF) to the Economy Motion which calls the government to “monitor closely the progress of the Bank of England, ensuring it has a refocused mandate that allows monetary policy to aid growth, reduce the unemployment rate to below 6% creating at least a million jobs, and to address weak income growth, targeting a higher level of national/median income.”

Who could possibly disagree with that? Well, me for a start. In practice this is reducing the independence of the Bank of England.

Liberal Democrats have long argued that the Bank of …

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Bill le Breton

What Japan did while we were sleeping

By Bill le Breton | Fri 5th April 2013 - 8:51 am

"2 x inflation in 2 years, 2 x monetary base, 2 x amount bonds purchased" “2 x inflation in 2 years, 2 x monetary base, 2 x amount bonds purchased”The overnight news yesterday from the Bank of Japan spelt out its serious intent to double the monetary base – the type of monetary easing, a l’outrance, that I have been arguing for at LDV, and elsewhere, for a number of years now.

The announcement followed the declaration back in November by the then leader of Japan’s opposition that when elected he …

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David Thorpe

Opinion: Radical action need to remedy the economy’s woes

By David Thorpe | Tue 11th December 2012 - 9:32 am

While the Chancellor’s direction of travel in relation to tackling Britain’s economic challenges is improving, his current approach will leave Britain feeling like Sisyphus, labouring hard to push a rock up a hill but never quite feeling secure that it won’t come crashing back down, destroying the hard work already undertaken.

But just as Sisyphus continued to focus on the mechanics of getting the rock up the hill, rather than indulge in any broader experiment to escape his predicament, Osborne toils at the seams of Britain’s economic malaise.

The Chancellor happily wallows in the Bank of England’s myth that giant infusions of credit from Quantitative Easing and the ‘Funding for Lending’ schemes, are any sort of remedy to Britain’s economic woes.

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Caron Lindsay

Sharon Bowles makes Bank of England governor shortlist

By Caron Lindsay | Wed 14th November 2012 - 1:15 pm

Sharon BowlesThe Telegraph reports today that Sharon Bowles, who is currently the  Liberal Democrat MEP for the South East of England has made it on to the shortlist for the next Governor of the Bank of England.

With her first hand experience of the Eurozone Crisis as Chair of the European Parliament’s Economic and Monetary Affairs Committee, she is a worthy contender for the position and, she argues, her appointment would send a powerful message of change.

“Just about everything about me is different. I’m an independent. I’m not from …

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Bill le Breton

Opinion: Will Special Branch be knocking on the Old Lady’s door?

By Bill le Breton | Tue 6th November 2012 - 9:09 am

Today three reports have been published into the operations of the Bank of England. None of these pose the killer question: why, when for month after month in 2008 the UK’s Gross Domestic Product in money terms (the NGDP) fell from its stable long term annual growth rate of +5% to -5% a year, did the Monetary Policy Committee stubbornly maintained the Bank’s interest rate at 5%?

This excellent blog by Britmouse details, details the quarterly falls in NGDP and the inertia of the Bank which has the power to set the level of aggregate demand in the economy.

It is …

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Duncan Stott

Opinion: Monetary policy is political, so where’s the democracy?

By Duncan Stott | Mon 3rd September 2012 - 8:56 am

We are in extraordinary economic times, which have led to extraordinary measures from the Bank of England in its attempt to help steer us out of the storm. The Bank appears to be terrified at the prospect of deflation and the depressive effect it could have. Not only have base interest rates been pinned to a historical low of 0.5% for well over three years, the Bank has also used Quantitative Easing to pump £325 billion of newly created money into the economy.

We now know more about the effect that QE is having and it should send shivers down the …

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David Thorpe

QE “benefits the better off” say Bank of England – so why are we still doing it?

By David Thorpe | Mon 27th August 2012 - 3:15 pm

In the first comprehensive report it has conducted into the impact of its Quantitative Easing (QE) policies on the UK economy, the Bank of England says that QE has “prevented a deeper recession” but that the policy “benefits the top 5% of households”.

It is the contention of this article that the central bank is broadly correct on both of those points-which begs the question, why is the Bank of England intent on pursuing the policy in the future?

I have previously written that QE has had the effect of preventing a deeper recession by effectively ending the credit crunch, but that it is limited in its capacity to deliver growth.

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Daniel Furr

Opinion: Britain has become a corporate state, not a free society

By Daniel Furr | Fri 24th August 2012 - 8:52 am

In the months after the financial crisis in 2008, I recall a conversation with an American friend of mine; we discussed the fallout and numerous rescue packages by countries. Financial media outlets, such as Bloomberg and CNBC, described the capital injections into financial institutions as a sign we are “all socialists now” – according to my American companion, this was far from the truth. In reality, Western economies have turned the page to fascism, not socialism.

When he mentioned this to me, I confess, it was rather amusing to listen to; very sceptical of such claims, until the request to research the facts myself led me to a worrying conclusion. The truth of matter is that we are not far off from what British fascists in the 1930s thought the financial sector should administrate to the rest of society.

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Stephen Tall

Barclays and the Bank of England: BAD rate-rigging and GOOD rate-rigging

By Stephen Tall | Wed 4th July 2012 - 11:15 am

The Barclays rate-rigging scandal has conflated a number of issues — Bob Diamond’s bonus, ‘casino’ banking, failed regulators — making it hard to get behind the media’s shouty headlines to understand the issues which should really concern us. Here’s my brief show-your-working attempt, starting with what Barclays.

What Barclays did right: ‘fess up

LIBOR (London Inter Bank Offered Rate) is the rate at which banks in London lend money to each other for the short-term. It’s used as a proxy measure of market confidence in individual banks, as well as a benchmark for setting mortgage interest rates.

Barclays has admitted filing misleading …

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Bill le Breton

Opinion: Clutching at straws

By Bill le Breton | Tue 15th May 2012 - 10:08 am

I have spent the day clutching at a couple of straws.

Last week in the tractor factory Nick Clegg appeared to confuse the ‘deficit’ with the National Debt when he said, “We have a moral duty to the next generation to wipe the slate clean for them of debt. We have set out a plan – it lasts about six or seven years – to wipe the slate clean to rid people of the deadweight of debt that has been built up over time.”

It sounded like a fail in GCSE Economics. But suppose he wasn’t mistaking the policy to eliminate the structural deficit by 2017 for a moral crusade to wipe the slate clean by removing the deadweight of the National Debt, all £1,300 billion of it.

At the other end of my straw was the realisation that Nick Clegg might have become an extreme Market Monetarist and was revealing his plan to re-establish Nominal GDP back to its trend line, even if that meant buying in the whole of the National Debt in the mother of all quantitative easing exercises.

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Nick T

The Weekend Debate: Bank of England independence – an economic success story or a well-intentioned failure?

By Nick T | Sat 12th May 2012 - 12:27 pm

Here’s your starter for ten in our weekend slot where we throw up an idea or thought for debate…

The Liberal Democrat 1997 manifesto said the following:

We will turn the Bank of England into a UK Reserve Bank, free from political interference. We will charge the Bank with keeping inflation low and make it accountable to Parliament for achieving this goal.

Of course after Labour’s landslide victory in that election, one of Gordon Brown’s first decisions as chancellor was to borrow this Lib Dem policy and essentially transfer responsibility for monetary policy to the Bank of England.

Most Labour politicians look back on …

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Joe Bourke

Opinion: Getting radical with the money supply

By Joe Bourke | Tue 3rd April 2012 - 1:34 pm

Last week the OECD forecast that Britain was about to experience a double-dip recession, for the first time since 1975. Vince Cable in his Centreforum paper Moving from the financial crisis to sustainable growth asks “How far should monetary policy now be expanded further in the UK to boost demand and head off a period of poor growth?

He goes on to say “There is no possibility for further meaningful interest rate cuts – real short term rates are now minus 4 percent. That means further recourse to quantitative easing.

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Mark Hofman

Opinion: Do Banks Rule the World?

By Mark Hofman | Sun 20th November 2011 - 2:05 pm

Last week many of us may have witnessed the sickening spectacle of watching a city trader declaring that Goldman Sachs rules the world… among other insights, such as how he lays awake at night fantasising about another economic depression.

If money rules the world, then surely whoever rules the world controls the money supply?

Many of us would, therefore, assume that the Bank of England creates money and regulates its supply to the economy, thereby controlling inflation and interest rates. However, whenever we look to finance a house, car, business project, etc, we invariably turn to the banks (in the …

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Mark Pack

The email the party could have sent to members and supporters

By Mark Pack | Thu 13th January 2011 - 8:55 am

When doing my series of posts at Christmas about the party’s challenges for 2011 one issue I picked up on was using members and supporters as a campaigning resource:

The party is not exactly short of opponents to overcome when it comes to implementing Liberal Democrat beliefs in government, yet we are not using the party’s grassroots strengths to help win those struggles.

The Conservative Party is, to take one example, split on civil liberties. Many key figures take a similar view to the Liberal Democrats, yet there are also many opponents of what a Liberal Democrat majority government would

…

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Mark Pack

Buckingham Palace, the Bank of England and a donation to the Conservative Party

By Mark Pack | Wed 14th April 2010 - 3:50 pm

UPDATE: Paul Cuttill, the Managing Director of the D Group, has been in touch to say that he is “100% certain” that the D Group has not made a donation to the Conservative Party and that the Electoral Commission’s register of donations is wrong. (The most likely circumstances in which this could happen are if an individual involved with the D Group has made a donation personally but that the donation was wrongly recorded.)

A business networking group that lists amongst its members Buckingham Palace and the Bank of England has given a donation to the Conservative Party.

The D Group …

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Giles Wilkes

Opinion: How to make QE into good Liberal Democrat policy

By Giles Wilkes | Tue 9th March 2010 - 10:20 am

In the last week, there has been a silly fuss about the risk posed by a hung parliament following the next general election. Nick Clegg has scotched the idea that the Liberal Democrats would undermine stability. In fact, his party has taken far more steps than the others to demonstrate credibility to the markets. Cherished policies have been sidelined in the interest of stablity.

The UK’s leading economics writer, Martin Wolf, agrees that there is nothing to fear from minority government, adding: “I cannot be the only person who believes that Vince Cable is far better qualified …

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Stephen Tall

Daily View 2×2: 31 July 2009

By Stephen Tall | Fri 31st July 2009 - 10:35 am

Welcome to this, the final summer edition of LDV’s Daily View – the feature will return again at the beginning of September, as will the various members of the LDV editorial collective.

2 Big Stories

Treasury select committee slams Government’s “largely cosmetic” banking reform plans

Here’s what the BBC has to say:

The government’s plans for reforming the regulation of banks are “largely cosmetic” and “lack clarity”, MPs in the Treasury Select Committee say.

In its report on the banking crisis, the committee says that responsibility for strategic decisions and action remains “a muddle”. The report also says that the Financial Services Authority (FSA) “failed spectacularly” in supervising banks.

More importantly, here’s what Vince has to say:

This report rightly underlines the need for high quality and transparent regulation if we are to create a stable financial system. We must not create a regulatory system that just deals with the current crisis but one which is fit for all the challenges ahead.

“The cross party report also exposes the sheer folly of George Osborne’s proposal to hand all power back to the Bank of England. While it is true that breaking up the banks will be complex, it is also necessary. A bank which is too big to fail is simply too big.

“The secrecy in which the White Paper was created shows the extent of the deteriorating relations between the Bank of England and the Government and does not bode well for the future.”

Gary MaKinnon loses US extradition court battle

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Stephen Tall

Vince on reform of banking regulation

By Stephen Tall | Mon 20th July 2009 - 1:00 pm

Lib Dem shadow chancellor Vince Cable has been delivering a speech on reform of banking regulation to the London Stock Exchange, outlining the ways in which the current regulatory model could be improved. Here’s the skinny:

  • RBS and Lloyds to be broken up before they are returned to private ownership
  • Highly paid bankers to publish details of their remuneration and confirm they are resident and domiciled in the UK
  • The FSA to remain as a unitary regulator
  • A long-term role for state banking, rather than the quick sale of state-owned banks
  • The scrapping of the “woefully misconceived” Asset Protection Scheme

And here’s Vince’s customarily pithy sound-bite:

The Government has yet to grapple with the challenge posed by the Governor of the Bank of England: that if a bank is too big to fail it is too big. One approach is to make it easier for big institutions to fail.

“Some aspects of the financial services industry are simply too big for the British economy to manage safely. The large, failed, British banks are the financial equivalent of Chernobyl. Like the former Soviet Union, the UK became over reliant on dangerous financial reactors.

“Britain has the highest share of banking assets in GDP of any major country, four times as high as the US. To prevent Britain from becoming the next Iceland, radical safety measures, like ones I have set out, are required.

“My approach to the City is not one of hostility, or of obsequiousness. I recognise its importance. But it needs ‘tough love’, not the freedom to run amok.”

But for those who want to read Vince’s words of wisdom in greater detail, excerpts from the speech transcript follow:

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