Just imagine if the Bank of England had not cut rates after the great crash

I am feeling slightly miffed. No, I tell a lie. In fact, I’m absolutely furious. The Bank of England is far from perfect. That Paul Tucker should by rights have been appointed as a successor to Sir Mervyn King as Governor of the Old Lady was at the time pretty clear to anybody who knew anything more about the Bank than that its name appears on the front of banknotes, but Tucker’s name had been dragged through the mud in the aftermath of the GFC.

King was not due to go until 2013 and someone had to walk the plank in order to satisfy the gutter press which in him had found a central banker who could be blamed for Barclays having survived and for not having gone to the brink along with Lloyds and the Royal Bank of Scotland.  

In the event, the Canadian Mark Carney was appointed to the job and although he had all the film star looks, I would be quite happy to stand up and confirm that from the day he was appointed I thought it to have been a huge mistake. To this day I have not wavered from my first impression. By the time Carney had himself ridden off into the sunset, the Bank of England’s reputation as a central bank to be taken seriously had been irreparably undermined and the appointment of his successor in the shape of Andrew Bailey in turn looked like HM Treasury furiously backpedalling by finding a grey and boring bureaucrat who would not, as had his predecessor, behave as though it was he who should really be ruling the country. That the prospective period of monetary policy peace and economic reconstruction was to be rudely interrupted by the Covid-19 pandemic was for nobody to have predicted.

Now Parliament is in the process of reviewing what went wrong during the pandemic and in its aftermath and why the economy is saddled with inflation, high interest rates and anaemic growth and the poor old Bank of England, source of copious billions of quantitative easing and ZIRP, is the easiest of targets. Britain, along with the US, avoided going down the NIRP rabbit hole but as we live in a country in which blaming pale, stale males in grey suits for every evil from the price of cheese to halitosis is like scoring a bull’s eye with every shot, there is a queue forming to take pot-shots at our monetary authority.

Now imagine the following. The Federal Reserve drops its Fed Funds target to zero and delivers helicopter money to all and sundry. The ECB goes further and slashes its own central refinancing rate to minus 50 bps while introducing a raft of monetary support measures with the most imaginative of acronyms. Now imagine the Bank of England sitting there going: “We think this is a very bad idea. We are not going to cut rates and flood the market with cheap and plentiful money. We are worried about the future inflationary effect and are scared to death of an overheating residential property market. No. We are not going to play this silly and risky game.”  

Just imagine. UK rates remain infinitely higher than everybody else’s, Sterling goes through the roof and Britain’s uncompetitive economy collapses as imports become too cheap and credit remains tight. Supply chains are brought to a standstill by the pandemic and with no help coming from the monetary policy side, businesses run out of cash and fail by the tens of thousands. 

Just imagine what all those now oh-so-clever critics of pandemic-era monetary policy would have had to say. There would have been riots in the streets. The Bank of England would have been held up as the heartless destroyer of millions of British jobs and the dreadful un-elected establishment institution which had sown a network of floating mines which in turn had holed below the waterline the good ship Brexit, democratically voted upon by a politically and economically mature British electorate. Sitting in judgement, apart from a Fourth Estate in pursuit of newspaper sales or more accurately online clicks, is a cabal of politicians who a year and a half before the next elections are fighting to prove that it was somebody, anybody, other than themselves and their voters who might be behind the high inflation, low-productivity conundrum.

Are the critics not by any chance the same muppets who just a few years back were crying out for the government to borrow and spend even more because money was so cheap? Had it not dawned on them that most of the lovely borrowed lucre which the government has spent helping out had in fact been provided by the Bank itself? Yes, the affordability of residential property might be at its lowest level in 200 years but the removal of the one feature which launched the boom in real estate prices, the reversal of which might in turn lead to the bubble being deflated isn’t right either.

Just imagine – here we go again – the hue and cry if the mortgage lenders had stood there and refused to offer financing because they feared that in a year or three rates might begin to rise again and that many of their enthusiastic first-time buyers might not know how to cancel their Sky Sports subscription, give up the daily Grande Starbucks with a Danish on the way to work or learn how to cook their own Sunday lunch. I don’t have a clue how much a tattoo costs but I’m sure some tidy fortunes have been spent on what I understand is colloquially known as “body art”.  In the ‘80s we had Yuppies – young upwardly mobile professionals. We had Dinkies – dual income, no kids. And we had Oinks – one income no kids.  

I do hate it when folks of my own generation begin with the “Do you know that we had to survive double-digit mortgage rates?” But it is sadly true that the standard variable rate peaked at something close to 18%. How we survived I really don’t know – but we did. I was an Oink and I can assure you that it was no walk in the park. 

So we want low housing prices for buyers but high ones for sellers. We want the banks to provide loads of easy credit to fuel consumption but woe betide those banks if they ever have the temerity to ask for their money back and take sanctions against those who can’t repay what they owe. Now there are voices calling for the Treasury to help those struggling to meet rising mortgage interest costs who also loudly express disgust when the Chancellor of the Exchequer dismisses the idea. We all know the Bank of Mum and Dad. Not for the first time there are calls for the Bank of Another Taxpayer to do the bailing out with the press as enthusiastic standard bearer. 

That is why I am furious. Credit is a privilege and not an entitlement. The banks find themselves castigated when they don’t take the risk and then again when they do. As night follows day, economies go through cycles and there will always be some who find themselves caught short. It was ever thus and all the howling and wailing on social media and all the virtue signalling by politicians can never make that go away. 

Write to us with your comments to be considered for publication at letters@reaction.life