The Bank of England never misses an opportunity to miss an opportunity.
Last week it sat on its hands and held the bank rate at 5 per cent after the European Central Bank (ECB) and US Federal Reserve reduced borrowing costs to bolster growth.
Governor Andrew Bailey is sticking to his knitting with a focus on hitting the 2 per cent inflation target.
Bailey told the Kent Messenger he is encouraged by the direction of prices, adding the path for interest rates ‘will be downwards gradually’.
Hesitant: Last week the Bank of England sat on its hands and held the bank rate at 5% after the European Central Bank and US Federal Reserve reduced borrowing costs to bolster growth
Why gradually? Barring a new supply shock, there is no reason to think that consumer prices will deviate far from target in spite of some disturbing public sector pay deals.
Bailey used to see his role more broadly. At the start of the pandemic he was the most sensible voice in the room arguing it was critical for a bemused Tory government to prevent scarring to the economy.
Bailey cut interest rates, embarked on an aggressive round of quantitative easing and urged the Government to come up with ideas to save companies and jobs.
He used the Bank’s balance sheet to provide loans to FTSE 100 firms and companies with a decent credit rating. It was a formidable intervention which reached well beyond the Bank’s core mandate.
After the great inflation of 2021-23, when the Bank was woefully off the pace in counteracting surging prices, Bailey and the Monetary Policy Committee (MPC) retreated into a defensive role.
The Bank needs to rediscover the spirit of adventure and pay more attention to the broader economy.
Writing in the FT, Tony Yates, a former Bank adviser, suggests that Labour change the MPC’s mandate so that in the manner of the Federal Reserve it steers a path between controlling inflation and supporting the real economy of output and jobs.
Previous governor Mark Carney initially tried to target jobs, but the goal became redundant when unemployment fell like a stone.
Rachel Reeves had six years working at the Bank, including time on the Inflation Report which guides interest rate setting.
Changing the Old Lady’s goals should be a priority. As vacancies occur on the MPC, members hidebound by group-think need to be replaced with economists, industrialists and labour market specialists with a wider perspective.
In the meantime, the Bank needs to act boldly and lift the monkey of unreasonably high rates off the shoulders of borrowers. At present, the Bank is proving even more sclerotic than the slow coach ECB.
Life of Pi
Among the biggest growth drivers for Labour would be unlocking the assets in pension funds for investment in high tech and infrastructure. There is no shortage of innovation.
The great challenge is to keep the pioneers, the patents and the jobs in Britain. Micro-computer maker Raspberry Pi, which listed in London in June, shows what is possible. Earnings were up 47 per cent in the first half of this year.
Investors who backed the launch are 36.1 per cent to the better since the initial public offering. Fund manager neglect of UK enterprise has seen ownership of far too much British tech disappear over the horizon.
Most recent to go is cyber-security pioneer Darktrace, when its services have never been more in demand.
It joins AI champion Deep Mind, owned by Google, and industrial software creator Aveva, now in French hands. The Cambridge commercial brain-drain would be unnecessary if UK asset managers were less risk averse.
Energy vacuum
Keir Starmer may have discovered some optimism in his Labour conference address but there were few eye-catching initiatives.
There will be some sighs of relief in Aberdeen at the unveiling of Europe’s most significant oil and gas city as the home of a diminished Great British Energy (GBE).
By all accounts, there are several alternative energy projects, including solar farms, ready to go. So far, as Centrica chief Chris O’Shea noted this week, there has been silence on big new projects which need Whitehall support.
These include the expansion of Rough storage for gas and eventually hydrogen, and exploiting the chance to repurpose the Morecambe gas field.
Energy Secretary Ed Miliband and GBE chief executive Juergen Maier must get their skates on.
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