Interest rate decisions have become fast and furious since the Bank of England began raising borrowing costs in December 2021, raising them tenfold to the current 4.5 per cent.
The most notable domino effect was on the cost of mortgages.
However, given the size of the price revisions, the impact on Britain’s ever-buoyant housing market has been modest, despite some lurid predictions of a housing crisis.
The nature of the Bank of England’s policy dilemma ahead of next week’s Monetary Policy Committee (MPC) rate setting session will be illustrated by what is happening elsewhere.
Core inflation in the US, which is trying to push down energy and food prices, remains sticky, but the Federal Reserve is expected to hit the pause button tomorrow.
Hold back: US core inflation remains sticky, but the Federal Reserve (pictured) is not expected to raise rates above current levels
The US Federal Reserve has raised interest rates by five percentage points to a range of 5% to 5.75% since it began tightening.
The scale and speed of the increases led to the collapse of SVB and First Republic and placed great stress on US regional banks. It has also sunk commercial real estate values and is showing signs of slowing job growth.
At the European Central Bank, increases have come through much more slowly, with rates standing at 3.75 percent. There are good reasons not to continue at the next decision meeting next Thursday.
The German economy is in a technical recession, which is slowed down by production. But there is pressure from hawkish Bundesbank president Joachim Nagel to keep his foot on the brakes.
His concern is that core inflation of 5.3 percent could become embedded. It is seen that a quarter-point increase is on the agenda.
Where does this leave the Old Lady? Should it join the Fed’s leadership or, like the ECB, continue to worry that tougher action is needed to tackle the cost of living?
MPC outside member Jonathan Haskel argues that the bank should “learn against” the risks of inflation and that further interest rate hikes should not be ruled out.
Inflation certainly affects personal budgets and all sectors of the economy. Monetary policy is a blunt instrument, its impact is unpredictable and time lags considerably.
At a time when the economy is showing healthy signs of sputtering, the Bank should take a leaf out of the Fed’s book and hold back.
After all, headline inflation should come down with a shock as fuel prices fall out of the indexes in 2022.
Lord a jump
The House of Lords is in the news all the time. Boris Johnson’s honors list, the House of Representatives’ attempts to reverse Rishi Sunak’s small boat law and former Prime Minister Gordon Brown’s ideas for a revision show that it is far from irrelevant.
Today’s appearance by Bank of England Governor Andrew Bailey before the Committee on Economic Affairs, which includes former Governor Lord King and former Chancellor of the Exchequer Lord Turnbull, should be fascinating.
It will address a number of perceived issues, including widespread ‘groupthink’ among MPC members and the composition of key committees.
Only recently did the Bank admit to a failing economic model and acknowledge that there were major lessons to be learned.
Labour, which granted full independence to the Bank in 1997, is concerned about diversity and other issues, as the Mail on Sunday reported last weekend.
Shadow Chancellor Rachel Reeves is clear that the bank’s inflation-fighting mandate will not be changed if Labor returns to government.
The Lords review is getting timely anger over the bank’s cost-of-living blunder.
Epstein shadow
The connection between JP Morgan and deceased convicted sex offender Jeffrey Epstein becomes a little too close for comfort.
Until now, America’s most blue-blooded bank and its chairman Jamie Dimon have been in the “nothing to see here” camp.
But a £234 million settlement with an unidentified woman on behalf of up to 100 victims who alleged Epstein was sexually assaulted after the bank was warned about his unspeakable behavior suggests the battle over the bank’s involvement is far from over.
JP Morgan continues to face charges filed by the US Virgin Islands and also has a dispute with former Barclays chief Jes Staley over who knew what and when.
Is Dimon’s halo about to slip away?
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