Connected Research

Union policy research in the 21st century

Interest rates remain on hold

leave a comment »

The Bank of England’s Monetary Policy Committee, meeting today, has decided to keep interest rates at 0.5% – the sixth month in a row that there has been no change to the rate. The Bank also decided to continue, but not further extend following last month’s £50bn increase, its injection of £175bn into the economy under its quantitative easing programme. Calls for a further reduction of interest rates, as a means of preventing financial institutions from hanging on to this money, have been made amidst debate as to why, if the recession is ending, companies are not borrowing more – which could act to prolong the recession.

Some survey data has begun to emerge (see, for example, the BBC website report of today’s decision)  suggesting an end of the recession, prompting Lord Mandelson to claim that the signs were that Britain was ‘climbing out of recession’ and that the government deserved credit for preventing the recession becoming a depression. Nevertheless, the Bank’s official view is that the recovery will be ‘slow and protracted’ and that the full effects of its policies will take months to feed through.

Meanwhile, David Blanchflower, former member of the MPC, has used his first economics column for the New Statesman to highlight his insider’s view of the development of the crisis – in particular, the failure of the Bank of England to take steps to deal with the recession before last October, a failure which he attributes to ‘group think’, with a Committee dominated by the Governor, Mervyn King. (In contrast, the members of what Blanchflower disparagingly describes as the ‘feeble six’ might see their approach as rooted firmly in the consensus-based approach which tends to dominate executives of all types.) Blanchflower also uses his New Scotsman piece to defend his record in arguing for rate cuts over a much longer period, on the basis that he was aware of the likely spread to the UK of what was happening in the States. Even so, Bank of England reports as late as August still refused to speak of recession, preferring instead to see the UK economy as entering a period of stagnation. Blanchflower also speaks of an alarming lack of information provided to members of the Committee about the situation facing financial institutions both here and in the US.

Clearly, when it comes to matters of judgment, in politics and economics as in other areas of life, no-one is infallible (a fact which our litigious culture might do well to recognise) – but it is also clear that an independent Bank of England means nothing if decision-making is still dominated by one person: greater independence is also required of the members of its Monetary Policy Committee (and on the basis of a greater provision of research-based information). Breaking the grip of the consensual approach is, however, likely to prove an interesting project.

Advertisements

Written by Calvin

10/09/2009 at 2:46 pm

Posted in Economic trends

Tagged with

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s