一种fter months of hand-wringing and flip-flopping, 这 Bank of England has settled on a plan. Following a whopping eight-to-one vote in favour at a meeting last week, the monetary policy committee decided the pandemic was over and now was the time to begin pushing interest rates back to pre-Covid levels.
The decision to become the first major central bank to raise interest rates since Covid-19 struck in 2020 was greeted with a whiff of derision in some parts of the City.
It could simply be a pride thing, after the governor, chief economist and a couple of committee members spent months saying action was needed, but did nothing. The Bank would prefer us to believe that pride has nothing to do with it and that the shift is a lofty and coherent strategy, designed to ward off the threat of runaway prices.
But in fact the move to higher borrowing costs prevents inflation – currently 5.2% and rising – from hurtling further above the 2% level allowed over the medium term by the Old Lady of Threadneedle Street’s rulebook.
无论哪种方式, and almost overnight, a policy of “risk management” that had rate-setters erring on the side of caution found itself supplanted by an aggressive stance and a rate rise.
British households that had come to rely on the Bank to bail them out in difficult times might understandably feel abandoned. 突然, it is more concerned with its own issues than the wider economy.
British businesses, many of them over-indebted and in some cases on the brink of collapse after the spread of the Omicron variant, must be coming to the same conclusion.
There is a strong case for more flexibility around the 2% rule. Inflation fell almost to zero earlier this year and the Bank considered pushing interest rates into negative territory, before backing away. Once the Omicron variant began to tear through the population and put hospitals at risk again, that same flexibility might have applied. 但不是.
Over at the Treasury, which stood shoulder to shoulder with the Bank when the pandemic hit, the need to protect vulnerable businesses and households has been downgraded, in this case by a determination to balance the books and stash away any spare cash.
Rishi Sunak has made it clear to Tory backbenchers that he wants to keep down the UK’s debt-to-GDP ratio – the overall debt mountain as a proportion of annual income. The chancellor wants the ratio to stay below what he believes is the psychologically important 100% barrier. He also argues that any spare funds should be used to cut taxes before the next election, a mission that limits what will be available in the latest round of Covid support.
再次, it’s not what most people want to hear. When times are tough and borrowers need the great institutions of state on their side, the signal should be clear that the two organisations with overarching control of money are doing all they can. Borrowers, 毕竟, drive the economy with their propensity to spend.
Accusing the Bank of overreacting might seem strong when the base rate, which determines to some extent the cost of borrowing from banks and building societies, has only increased from 0.1% 到 0.25%.
Not many businesses are going to stumble and collapse because their credit bill is hit by a 0.15-percentage-point rise. 同样地, most mortgage payers are on fixed-rate loans and those who are not can probably afford to pay a few extra pounds a month. It is not so much the increase itself as the message it sends of a certain detachment – when business cashflows are running dry and countless households are struggling to make ends meet.
Even some of the most cautious economists have asked why, when wages and inflation figures are still distorted by the pandemic, the central bank would behave as if there were a coherent economic story from which to build a fresh monetary policy.
To just take one example, clothing sales were disinflationary at the beginning of the year because prices were compared with pre-pandemic levels. 同时, shopping habits were changing from month to month, blowing out previously reliable seasonal adjustments.
In the last inflation figures, shoppers had returned to old seasonal habits, with a rush of Christmas spending, but the comparison with a year ago was with the most miserable November in recent memory, blighted as it was by the second lockdown.
The Bank wants to calm a situation it barely understands with a policy that is only going to depress an economy which, judging by the latest GDP figures, is already slowing to a standstill. It looks like there will be more flip-flopping to come.