Thursday, 6 August 2015

A message to the Governor (Mark Carney)

Every month now we have a cliffhanger of the will he wont he type over raising interest. Governor Carney regularly says not, but then accompanies it with dire warnings that they will rise sometime this year next year only the omniscient bankers can say when and they don't have the foggiest idea.

It's great fun for the media who can speculate endlessly before hand and then explain endlessly after the  announcement of a non -increase. This year only one MPC member voted to raise interest rates so  the impression is created that he's battling for economic sense  against a wastrel majority. Then speculation can begin all over again on whether more will vote for it next time .

It's all a pretence. They won't raise interest because they can't raise interest rates because the Osborne recovery is so fragile and weak that any increase in interest rates would kill it . 

The "recovery" isn't due to any Tory long term economic plan (LTEP as its known) but to the fact that if you keep interest rates flat to the floor long enough there's bound to be an improvement in activity.. Raise interest rates in that situation and you stop it in its tracks

First, the march of the makers is a limp of the left behind because manufacturing is suffering from the high pound already. To put up intererst rates rases the pound stiill further and turn fighting retreat into rout.

Second firms families and government are all hung down with debt. Higher rates check demand and cut growth. Those who're struggling to carry the burden  will go under.

Third the Bank's remit is inflation at 2%. It's nowhere near that now so why rush in to raise rates against an anticipated rise in inflation which isn't happening. The answer appears to be because Finance wants it and talks of a return to "normal" rates. But what's normal in a continuing recession? Don't we all know that once the barrier is crossed they'll be edged up further and further

My advice to the MPC is to take a year's holiday and use it to get away from the City of London and all the financial journalists who parrot its lines and go on a prolonged tour of British manufacturing particularly in the North and Midlands. Talk to young people who're hanging on to houses they can barely afford

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