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Original poster

The Bank of England is crazy to reduce interest rates

60 replies

LargeDeviation · 01/08/2024 12:23

Services inflation is still rampant at over 5%.

The economy is far stronger than the Bank of England's own expectations.

The labour market is extremely tight.

On top of the monetary factors, there is massive fiscal loosening. Rachel Reeves is doling out bumper pay increases to the public sector, which will be highly inflationary.

Yet Andrew Bailey feels it is the right time to cut rates.

The Bank of England were hopelessly late in raising rates in the first place, leading to far higher inflation and eventually interest rates than our competitors. Now they are too early to cut rates, which will lead to far stickier inflation over the next few years, and having higher interest rates for much longer than required overall.

Their forecasting is hopeless, persistently underforecasting inflation.

Andrew Bailey should resign.

OP posts:
TorroFerney · 01/08/2024 17:20

Sethera · 01/08/2024 12:56

Yay, mortgage payments going down 😃

(Sorry!)

May be wise to point out that not all mortgage holders will see a reduction, your lender doesn’t have to pass it on . Hope yours does if it helps of course.

RedPoster · 01/08/2024 17:20

Allthegoodnamesarechosen · 01/08/2024 12:56

Dont worry OP. They be back up quite soon

I thought there was going to be a possible second reduction in the autumn?

nannynick · 01/08/2024 16:58

Dark chocolate up 16.6% per 100g at Sainsburys this week vs last week.
Food inflation is still an issue. Yes that is just one product but if food overall is increasing in cost, then will this rate reduction help at all to reduce that? Maybe it will reduce the debt repayments of supermarkets (are they in debt?) and will it result in them reducing prices?

Those on a tracker mortgage may see a change to what they pay, but I don't expect rates generally will change. New mortgage approval rates likely have already factored in a reduction.

cardibach · 01/08/2024 16:52

No problem @Ihateboris (so do I). Others may disagree. Economics is as much an art as a science.

Ihateboris · 01/08/2024 16:50

cardibach · 01/08/2024 16:49

I’m not an expert either (did some 8n my degree but that’s a loooooooong time ago now). As I 7nderstand it, inflation wasn’t driven by demand this time but by massive fuel cost increases and their knock on. Paying public sector workers something that will address the pay deflation they’ve put up with for 10-15 years won’t affect it and might boost the economy. Also a load of it will come back in tax anyway.

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Thank you so much. That makes perfect sense!

cardibach · 01/08/2024 16:49

Ihateboris · 01/08/2024 14:44

Please can someone answer a question for me, as I'm a bit stupid when it comes to economics?

So, if the reason the BOE feel it's the right time to reduce interest rates, as inflation is low, what happens if the public sector receive the 5.5% pay increases, and the junior doctors receive their pay increases? Won't this then increase inflation? And, if so, will interest rates have to come down again? I'm confused.com

I’m not an expert either (did some 8n my degree but that’s a loooooooong time ago now). As I 7nderstand it, inflation wasn’t driven by demand this time but by massive fuel cost increases and their knock on. Paying public sector workers something that will address the pay deflation they’ve put up with for 10-15 years won’t affect it and might boost the economy. Also a load of it will come back in tax anyway.

Boomer55 · 01/08/2024 16:46

The Bank have made it clear that this will probably be the last reduction this year. They are waiting to see how above-inflation pay rises, for some workers, affects the economy.

Original poster
LargeDeviation · 01/08/2024 16:42

The MPC has 5 internal members (governor, chief economist, 3 deputies). They are groupthinkers par excellence. The ultimate Old Boys club.

The external members are appointed by the Chancellor. So a chancellor can appoint all doves or all hawks depending on their viewpoint. So far, no chancellor has appointed data scientists (who can actually make sensible predictions) rather than economists.

I think all prospective candidates should have to shadow the MPC for a year beforehand and make predictions of various macro indicators conditional on the path chosen. Then the Chancellor can make informed choices on who to appoint based on who makes accurate data-driven predictions.

OP posts:
LlynTegid · 01/08/2024 14:59

I may not always agree with their decisions, though prefer this method than having the Chancellor set the rate. Just remember who some of the Chancellors of the Exchequer have been in recent history.

Ihateboris · 01/08/2024 14:44

Please can someone answer a question for me, as I'm a bit stupid when it comes to economics?

So, if the reason the BOE feel it's the right time to reduce interest rates, as inflation is low, what happens if the public sector receive the 5.5% pay increases, and the junior doctors receive their pay increases? Won't this then increase inflation? And, if so, will interest rates have to come down again? I'm confused.com

altmember · 01/08/2024 14:19

I agree, but for different reasons - Labour giving away public money left right and centre in pay increases is going to fuel inflation. On the other hand, the extra tax burden is going to have the opposite effect.

cardibach · 01/08/2024 14:16

Rummly · 01/08/2024 13:55

Waaaay to miss the point.

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What is your point then?
I took it that you thought the recent improvements in the market were down to Tories being jolly good economists.
That’s clearly absolute nonsense.

WickieRoy · 01/08/2024 14:02

QueenCamilla · 01/08/2024 13:59

This sort of rhetoric brings up unpleasant pandemic memories.
I suspect we'll hear a lot of the same during this government.

@WickieRoy you DO think you know better. You'd just prefer it if others were to shut up.
If, however unlikely that is, your critical thinking and your opinions are all outsourced to professionals...Good luck in the modern day Britain. Just stay away from the NHS and all and any builders - horrible things happen with misplaced trust.

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I just know my expertise and respect others'. Confused I do trust medical experts in the NHS, yes. I actually trusted my builder too! I'll agree I got lucky on that one though. Grin

(Don't live in Britain btw.)

QueenCamilla · 01/08/2024 13:59

WickieRoy · 01/08/2024 13:41

I wouldn't dare to think I'm sufficiently qualified or informed to have an opinion, let alone such a strong one tbh!

This sort of rhetoric brings up unpleasant pandemic memories.
I suspect we'll hear a lot of the same during this government.

@WickieRoy you DO think you know better. You'd just prefer it if others were to shut up.
If, however unlikely that is, your critical thinking and your opinions are all outsourced to professionals...Good luck in the modern day Britain. Just stay away from the NHS and all and any builders - horrible things happen with misplaced trust.

Rummly · 01/08/2024 13:55

cardibach · 01/08/2024 13:32

Good stewardship from the last government? You have to be kidding…
In the same way the markets got jumpy about Truss, they have welcomed Reeves. That’s what’s happened. Not what she’s done yet, but that they trust her not to do anything fucking stupid.

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Waaaay to miss the point.

Superworm24 · 01/08/2024 13:45

But inflation wasn't caused by rampant spending and increasing interest rates hasn't really bought it down. It was mainly driven by energy costs this time.

NeedSomeAnswersPlease · 01/08/2024 13:42

WickieRoy · 01/08/2024 13:41

I wouldn't dare to think I'm sufficiently qualified or informed to have an opinion, let alone such a strong one tbh!

Same here!

WickieRoy · 01/08/2024 13:41

I wouldn't dare to think I'm sufficiently qualified or informed to have an opinion, let alone such a strong one tbh!

ll09sm · 01/08/2024 13:34

Aaron95 · 01/08/2024 12:38

I prefer to think that the people i charge of the Bank of England know more about ecconomics than we do. Yes there are unknowns and ecconomics is not an exact science but I suspect their decisions will be more informed than mine or any other MN user.

Where have you been for the last 15 years? If think BofE is competent

cardibach · 01/08/2024 13:32

Rummly · 01/08/2024 13:23

I have sufficient faith in the BoE.

What I’m really in awe of though is Rachel Reeves’s miracle. Just a month in and she’s got interest rates down, the newly stable economy now allowing for it. Nothing to do with good stewardship by the last government, oh no.

Good stewardship from the last government? You have to be kidding…
In the same way the markets got jumpy about Truss, they have welcomed Reeves. That’s what’s happened. Not what she’s done yet, but that they trust her not to do anything fucking stupid.

EverythingAllatOnceAllTheTime · 01/08/2024 13:30

LargeDeviation · 01/08/2024 12:23

Services inflation is still rampant at over 5%.

The economy is far stronger than the Bank of England's own expectations.

The labour market is extremely tight.

On top of the monetary factors, there is massive fiscal loosening. Rachel Reeves is doling out bumper pay increases to the public sector, which will be highly inflationary.

Yet Andrew Bailey feels it is the right time to cut rates.

The Bank of England were hopelessly late in raising rates in the first place, leading to far higher inflation and eventually interest rates than our competitors. Now they are too early to cut rates, which will lead to far stickier inflation over the next few years, and having higher interest rates for much longer than required overall.

Their forecasting is hopeless, persistently underforecasting inflation.

Andrew Bailey should resign.

Respectfully, yours is cod economics, which is better left to a GCSE textbook.

Please be serious.

Rummly · 01/08/2024 13:23

I have sufficient faith in the BoE.

What I’m really in awe of though is Rachel Reeves’s miracle. Just a month in and she’s got interest rates down, the newly stable economy now allowing for it. Nothing to do with good stewardship by the last government, oh no.

Butterflyfern · 01/08/2024 13:12

LargeDeviation · 01/08/2024 12:48

@Aaron95 The Bank of England's economists are idiots. That's why they had to get Bernanke in to try to shake up their forecasting methodology recently.

They have persistently undermodelled inflation, dating back to at least Carney

https://blogs.lse.ac.uk/businessreview/2021/10/20/the-bank-of-englands-response-to-rising-inflation/

Quoting: over the last 15 years, the Bank of England has, on average, under-predicted one-year ahead CPI inflation by 20 basis points per annum. The Bank’s forecasting record is slightly worse two years down the road. Indeed, the Bank has under-predicted two-year ahead CPI inflation by an average of 32 basis points per annum.

They're idiots? Feel free to challenge their modelling, forecasting, approach etc. But why get personal? And saying stuff like they're idiots just undermines anything sensible you might have to say

Economics is not an exact science, particularly at the scale the BoE works at. Why do you disagree with their assumptions?

GasPanic · 01/08/2024 12:58

BOE doesn't determine the price of money anymore anyway.

The market does.

Allthegoodnamesarechosen · 01/08/2024 12:56

Dont worry OP. They be back up quite soon