It’s time to do the honourable thing and raise interest rates

Last year, Bank of England governor Mark Carney told us that when the unemployment rate got down to 7% the Bank would have a think about raising rates from the 300-year lows everyone is beginning to think are normal. It seems that’s already happened – the latest number came in at 7.1%.

Carney has had a think, and he has let it be known around Davos that rates aren’t going anywhere. Apparently we are in a “different place” to where we were last summer, so the guidance given then is no longer relevant. Instead, we have to look at many, many other indicators to be sure the UK is at “escape velocity.”

We are clearly being guided to think that forward guidance is about to be reguided (it’s a good policy isn’t it?) But to what? Back to inflation? That seems silly, given that it was only moved away from inflation a few months ago. And even when rates were supposed to move with inflation, they didn’t.

Perhaps it will be wages? We know the rises in these in real terms haven’t been much good to anyone over the last few years – the only way most working people have kept spending as though the crisis never happened is by diverting the cash that would have gone on mortgage interest (and which, with rates at 0.5%, doesn’t) into other things. Perhaps it makes sense not to raise rates until real wages are rising enough to compensate these people for the rise in their housing costs that will fast follow.

If you were Mark Carney, would you raise interest rates? When will that be? The thing is that wages could easily confound Carney just as much as the unemployment numbers have.

As Halkin’s Peter Warburton points out, we now have something of a “runaway labour market”. Yet earnings are barely rising at all – bar in the wholesale, retailing, hotels and restaurant sector where they are up 3.1% (workers in these areas have seen their pay keep pace with inflation!). We still have a lot of people out of work – 2.3 million are counted as unemployed, and about the same as ‘inactive but wanting a job’, to say nothing of the two million who are long-term sick.

But nonetheless, “based on historical relationships recruitment hiring survey strength is consistent with annual pay growth of 5% not 1%.” This is a “dam waiting to burst” and that makes it “the honourable duty of the Bank of England to raise Base Rate.” We agree – and we aren’t the only ones. If you look at the strength of the pound you will see that the market has already priced a rise in.

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16 Responses

  1. 26/01/2014, Boris MacDonut wrote

    To be fair, Carney said when the unemployment rate had been below 7% for a while he would then consider raising rates. I read that as meaning when it has been say 6.4 to 6.8% for say 4 or 5 months. Nobody expects a rate move before Xmas.
    MW may wish it , but I really think that is pie in the sky.

  2. 26/01/2014, Tyler Durden wrote

    Not going to happen before the next election and probably not ever unless they are absolutely forced into it by some massive currency crisis, by which time it will all be too late anyway. Neither we nor our banks, in particular (who are insolvent), can afford it.

    Any indication that the B Of E will raise base rates, or any measure they come up with like 7% unemployment, is completely bogus and expressly designed to mislead.

  3. 27/01/2014, Critic Al Rick wrote

    To my mind there are two main indicators to a healthy economy:

    1) A good Balance of Payments Surplus

    2) A Budget not in Deficit

    And whilst the Very Rich Parasites and their associated pseudo respectable businesses are:

    a) cheating HM Treasury with so-called legalised Tax Avoidance

    b) pursuing their Globalisation policies

    the economy in the UK, for one of many countries, will never return to a healthy state before the masses have largely been reduced to the Lowest Common Denominator.

    I can’t see IRs rising significantly for a very long time.

  4. 27/01/2014, r wrote

    @Critic Al Rick :

    It isn’t fair to call the companies who are legally avoiding tax as Very Rich Parasites.

    I am sure you pay no more tax than you have to.

    Mr. Blair and his cronies, supported by the rest of the main parties/opposition, signed away our rights to e able to tax pan-European companies that operate in the UK.

    The only way to restore this capability is to get out of the EU. It’s no good bitching about it, nothing is going to change.

    r.

    • 27/01/2014, Boris MacDonut wrote

      Have to say I agree with Rick. It is perfectly fair to refer to them as Very Rich Parasites and it is disingenuous to try to blame Blair however repugnat his policies may have been he did not create the culture of greed and deception that drives and facilitates enriching the already rich at an exponentially growing rate.
      The 1% now have the same level of wealth as before the First World War.What an insult to the poor on the centenary of that conflict. We should all be ashamed.

    • 27/01/2014, Critic Al Rick wrote

      The UK is riddled with Parasites of many types. Those whose disproportionately high remunerations/profits are derived from a blatant corruption of the playing-field include, in my book, Very Rich Parasites. They are cheats and scroungers of the highest order.

      I consider the advent of Globalisation, driven by International Corporations, to be more fundamentally to blame than the likes of Mr Blair and his cronies. Such is the power of these Corporations, I wonder if the UK leaving the auspices of the EU would achieve the desired effect in respect of increased taxation revenue; those Corporations that could operate elsewhere in the World for much less taxation would probably leave the UK.

      You’re right, bitching about it is hardly likely to change anything; but it is good for the morale!

      • 27/01/2014, Ellen12 wrote

        Bitching about it is the start of unrest and unease at the growing inequality our world is prepared to accept. Privacy is a thing of the past and any level of challenge to the ruling political and financial elite, worldwide, is met with the use of propaganda – whether that be being labelled a crank or a terrorist. Anger against their system is punished more than the same crime when it is done by common criminals. Just scratch the surface of the current unrest in Ukraine – even the middle east. Sectarian wars rarely, if ever, are without a battle for land, power and wealth of a less ecumenical nature.

        There is nothing equitable about having huge swaths of London empty and owned by foreign investors, who have not intention of ever inhabiting them, while not being able to house the local population – and making squatting illegal (possibly the only redress of the poor in the circumstance).

        There is nothing equitable about forcing people to work longer hours for less and forcing them to accept a currency that you are deliberately depreciating to make their labour even less worthwhile.

        And there certainly is nothing equitable about a few unelected bankers divvying the spoils of their ill gotten gains among their friends and associates while the world spends their time trying to second guess their next move.

        Bitching, or uneasiness about growing inequality needs to be much more widespread. Maybe then some appropriate action could take place.

  5. 28/01/2014, r wrote

    The point I was trying to make is that there will not be any change while we have the same main party leaders and their principles as we have at the moment.

    I agree with a lot that @Ellen12 wrote but we do have it in our hands to change things. We have to realise that the old, established “left” and “right” parties are no longer suitable for the county’s needs; certainly, there is too much corruption there and their policies are very similar. We still have UK governments of every colour intent on increasing their expenditure by sacrificing the value of the pound, to the detriment of savers and the populace as a whole.

    This has been further exacerbated by our governments accepting the more ridiculous rantings (sorry, Directives) of the unelected EU Commission and getting away from that organisation is the first move we can make to restoring sovereign control.

    I would like to see independent MPs in Parliament, people such as Martin Bell and local businessmen, people who have principles and can manage a household budget, albeit a large one, in preference to professional politicians. This was the situation several decades ago; time for a change.

    Yes, bitching may be good for the morale but action is required to change the management of this country.

    r.

  6. 28/01/2014, Critic Al Rick wrote

    @ r.

    I’m wondering what action is required “to change the management of this country”.

    To my mind, apart from relatively minor issues, there is effectively no management and what management there is mostly mismanagement, pandering to the whims of vociferous cranks and to Parasites of all varieties; certainly no mamagement from the point of view of looking towards the best longer term interests of the majority. The UK is like a rudderless ship; heading for the rocks.

    Our Government appears to me to be a puppet; in economy matters, a puppet to the Very Rich Parasites as I’ve detailed above. How do you cut those ‘strings’; by leaving the EU? I would hope so, but I fear the EU is largely controlled by the same puppeteers; the drivers of Globalisation. And those drivers are extremely well entrenched, so much so that I doubt leaving the EU would divorce us from their influence.

    I think it needs action on the scale of a united global uprising against these Very Rich Parasites to enable such a “change in management”.

  7. 28/01/2014, r wrote

    @Critic Al Rick

    Yes, it would be a big upheaval but not necessarily on a global scale. A western European scale perhaps. There is already discontentment in France and even Germany at the moment. I am sure there is in Greece and, probably, Italy. If we could be bold enough to leave the EU, there would be an uprising in Europe and by “uprising” I mean a radical rearrangement, not a war.

    We would not lose the EU as a trading partner because we are net importers from the EU.

    It may well be that the same global organisations are influencing the running the EU but, here, we could (could) have a change of management where you and me and similar characters stood for Parliament. I am convinced that we need independence back in Parliament, independent MPs representing their constituency, not mps following the rhetoric of their “left” or “right” parties and the financial hangers-on and lobbyists.

    Radical? Perhaps, yes, but only because we have all become indoctrinated with high tax and a “do as you are told” culture. I feel that a rapidly increasing number of people are disillusioned with the current situation. No government in 30 years has attempted to reduce our unmanageable expenditure, which does prove my point to some extent.

    r.

  8. 28/01/2014, Critic Al Rick wrote

    The “honourable thing” would be for the Very Rich Parasites not to Avoid Taxation.

    Then economies could improve.

    Then IRs could increase.

    But, the nature of homo-avaricious being as it is, it won’t happen.

    I will gladly eat my hat if it does!

  9. 28/01/2014, r wrote

    I don’t think there is any “honourableness” in taxation. Everyone, people and corporations, will pay the minimum tax they can legally get away with.

    When we have sovereign control back, we can change these things.

    Don’t forget that the corporations are still employing a lot of people and are therefore paying employers NIC; they are employing contractors and delivery staff etc. whose taxation and employment also brings in cash to HM Govt. coffers.

    I still think your term is inappropriate; it is our governments that have created this problem. People and corporations are only responding.

    r.

    • 28/01/2014, Critic Al Rick wrote

      @ r

      It’s not so much a case as being “honourable in taxation”, as being honourable to fairness and integrity.

      I’m not forgetting that International Corporations are employing a lot of people paying IC and NI (incidentally, it could be argued that Employer’s NI is denying Employees of remuneration and is therefore effectively further Employee’s NI). That’s exactly the point; to change things in the way you suggest via regaining sovereign control may well cause International Corporations to leave; not only denying the Exchequor of revenue but also further burdening it with unemployment benefit.

      They appear to have us ‘over a barrel’.

      Oh; I’d be the last to deny we have been betrayed by treacherous politicians.

  10. 12/02/2014, Paul wrote

    Mark Carney will not do the ‘honourable’ thing, he is George Osborne’s puppet.

    Carney has already shown us how he will move the goalposts so quickly if he chooses by reneging on his forward thinking policy for interest rates such as linking rates to falling unemployment figures, he should be raising rates.

    He did the same thing in Canada to the detriment of savers there. He cannot be trusted to do what is honourable for the largest group in Society, Savers!

    • 12/02/2014, Critic Al Rick wrote

      Paul. IMO if Mark Carney is George Osborne’s puppet then George Osborne is not acting in his role as supposed representative of the British Public but in his role as representative of the Bilderbergers and/or similar.

      But, IMO I suspect it is George Osborne who is subservient to Mark Carney.

      Whatever the case, neither MC or GO are acting in the best interests of anyone other than the real Powers-that-be. And presently it is debtors and would-be debtors who are the inadvertent beneficiaries of current Powers-that- be self-served largesse.

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