The Bank of England is crazy to reduce interest rates

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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.

Headline and core inflation are at target. So what if services inflation is higher. There will always be some component of inflation which is higher. Rachel Reeves is not doing any fiscal loosening. She’s giving a pay rise to a tiny proportion of public sector workers which will have a near zero impact on inflation. She has strongly indicated overall spending restraint and imminent tax rises. Not doing anything would be an effective hike given that the Fed and ECB are both on a cutting path.

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.

It’s a tiny drop. Don’t worry about it.

I would not have done it, but I don't consider it a resigning matter. It is a decision by nine people not one.

Consider the recent data:

Chinese export prices: higher than Bank of England expectations
GDP growth: stronger than Bank of England expectations
Overall inflation: 2.0% last snapshot rather than 1.9% expectations
Pay growth: in their own words, 'pay growth had remained in excess of rates explained by Bank models'
Services inflation: in their own words, 'higher than expected at the time of the May Report'.

So data comes in more inflationary than expected, and yet they decide to cut rates... Andrew Bailey simply hasn't got the guts to be an effective central bank governor.

@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.

It was not unanimous - I understand it was 5-4 - so uit was not 9 intelligent people. Just the 4 who were against were the sensible ones.

Suspect is probably related to some industries where there is significant borrowing are making redundancies. My employer the biggest in sector in UK made third round of redundancies yesterday in 12 months, 3% of our work force went yesterday.

The internal members of the BoE MPC tend to be sheep. Huw Pill is the one exception recently, but by and large they vote as a pack.

Yay, mortgage payments going down 😃

(Sorry!)

Dont worry OP. They be back up quite soon

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

The market does.

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?

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.

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

Please be serious.

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.

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

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!

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.

Waaaay to miss the point.

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.

I just know my expertise and respect others'. 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.

(Don't live in Britain btw.)

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.

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.