This time last year, most people thought that interest rates would have risen by now. The consensus forecast was for around 2.5%.
So much for that. On Thursday, the Bank of England’s Monetary Policy Committee decided to leave the bank rate at 0.5%. It has been 0.5% for more than two years – so long that people appear to have begun to forget just how extraordinary it is.
Analysts Church House Investment Management sent me a chart recently. It maps the bank rate or equivalent back to 1694. And it makes sure I don’t forget what extraordinary times we live in, by showing that the rate has never been this low before. Never. Over the last 300-odd years the floor for the bank rate has been 2%.
That is something worth keeping in mind every time you read anything about the ‘recovery’ or about how our banks are just fine. I’ve printed it out and stuck it on the wall behind my desk. You might want to do the same.
When will it change? All the other charts that we keep an eye on are listed here, but the most relevant ones to the bank rate will probably end up being those on inflation – and in particular on wage inflation, something that hasn’t taken off properly yet but is showing some signs of doing so soon. Note that Reuters recently reported private sector wages rising at around 3%.
However, don’t expect things to change in a hurry. Our banks still have a long way to go before an objective observer would call them healthy, and there are increasing signs that the authorities are hoping to use a version of ‘financial repression’ to trade their way out of trouble. More on this here.
Finally, it is worth noting that our monetary system is very geared towards creating growth. But what if Western economies have moved beyond growth? What if the growth spurt we have seen over the last 300 years was exactly that, a spurt – and one that has now come to an end? For more on this see the latest issue of the magazine.