The Bank of England’s Inability to Tackle Inflation (Roger Gewolb)

This blog encourages frank expressions of views. I’ve been approached by Leading fair financial expert, entrepreneur and broadcaster, Dr Roger Gewolb, to re-publish this article that first appeared in Business Leader, it’s frank!

It takes a look into the Bank of England’s rapid interest rate rises and their damaging blows to the British economy. All views are Roger’s.

The Bank of England’s latest interest rate rise is the 13th in little over a year, and it has taken us from .1% per annum to 5%, which is the highest rate for 15 years.

Both the Bank of England and its Governor, Andrew Bailey, have a history of waiting too long to take necessary actions. The Bank, as long ago as the mid-19th century, failed to spot and dampen inflation early on and instead let it run out of hand. Bailey was criticised, whilst running the UK Financial Conduct Authority, for waiting too long to spot and prevent bad actions in the Woodford and London & Capital scandals, with UK investors allegedly losing billions of pounds. Right now, when faced with similar conditions, requiring wise and strong action, they have raised interest rates far too fast and far too often, seriously damaging the British economy, businesses and consumers.

At the same time, they decry that they are “combating inflation” to save the economy and protect the country by their actions, even though inflation has not moved downwards significantly in more than a year. They also say they need to protect the pound against the dollar, but that protection is also not happening.

At the recent grand Mansion House annual dinner, a centuries-old gathering of bankers and City grandees, the Prime Minister and Chancellor effectively added their blessings to this madness, thus institutionalising it with the promise of even more rate rises and unnecessary misery going forward.

Unnecessary because what we have is cost-push, non-consumer-driven inflation, raising interest rates won’t help reduce it. It needs to be left to run itself out, as it always does, without crashing the economy in the meantime.

The stubbornness of the Bank of England

Some say that we should remember when interest rates were as much as 14%. However, as recent building society and other studies state, a mortgage at just over 6% today is actually equivalent to a 25.7% rate in 1980. Real wage growth and much else is actually in retrograde, so we are hardly returning to a better position and can therefore afford this insanity, as they constantly try to tell us.

Labour is no better, as they simply do not make the obvious comments on all this and also gaslight on other matters, chiefly about how much better they would do, but without real specifics. It’s our whole system that is broken, as I cover in my interviews with experts including some notable politicians themselves.

What is most concerning however is the stubbornness of the Bank of England, our Government and their advisors who have further fanned the flames of the public’s emotions by insisting that this is the right course of action, even though after 12 rises it has proved to be an inefficient monetary strategy. Rishi Sunak told homeowners to “hold their nerve” over rising rates; we have been holding our nerve for more than a year without results. I’d like to remind Sunak that he was the niggardly, tax-mad Chancellor who nevertheless lost £21bn to the Covid fraud black hole through incompetent, uncontrolled lending, according to the National Audit Office. The schemes to help businesses and individuals during the pandemic have left taxpayers with a fraud-and-error bill, which should not be footed by British citizens.

The high cost of failed strategies

The Government could have helped in many ways to reduce inflation. Andrew Bailey, the rest of the monetary policy committee (the nine-strong group that set official UK borrowing costs), Sunak and Hunt need to answer serious questions on the current economic crisis they have created by mismanaging the British economy. I have spoken endlessly already on all the TV and radio shows I have been called onto to discuss this matter, from LBC to talkTV and GB News. I have been very vocal on this since before the very first rise. The Bank of England waited too long to deal with low rates and cannot cure it all at once and cause a catastrophe because you cannot stop inflation that is not driven by consumer spending by crushing people with interest rate rises.

These higher and higher rates are actually causing an upward inflation cycle and prolonging the day when this inflation starts to run itself out, as it did in 2009-2012, when the then BoE left rates untouched at .5% p.a. Bailey no doubt meant well; he took over as Covid began and wanted to keep the economy healthy and going. But, he (1) waited far too long to start adjusting the historic low rates upwards again and then (2) dumped them all on us at once-two fatal errors that have wrecked millions if not tens of millions of British lives and livelihoods. But the point of this is that all of this is and should be above politics and about fair finance, business and the economy.

The Bank of England has thus mismanaged this inflation cycle from the start. We are facing the biggest mortgage crisis since the ‘80s due to a catastrophic failure of monetary policy set by them. Rate rises have crippled millions of British consumers, and tens of thousands of businesses, and caused grave problems in the mortgage, rental and property markets, among many other things. Also, by the way, they were completely unnecessary and ineffective!

The Bank of England and the Government are basing ‌monetary policies on ‘70s theories that inflation is caused by wages rising faster than prices. Today, private sector wages rise is 7% and public sector is 5.9% and inflation is 8.7%. Connect the dots for goodness’ sake. Post-Covid UK boom meant the wealthy tiny minority created demand causing very short-term inflation that would have adjusted itself almost overnight, but the Government backs the BoE in using this spurious nonsense to tell us we have a crisis demanding we are all crushed by interest going from .1% to 5% and further, relatively overnight. The BoE just keeps pushing interest rates to reduce real demand, which isn’t there and thus not working; keep raising interest rates will always cost us more.

Empty promises

Jeremy Hunt has only recently finally criticised the Bank of England, admitting there are forecasting and modelling issues with their monetary policy while Mr Bailey ‌keeps saying wage growth is too high and we should stop seeking pay rises and greater profits and ROI in our business for now, all while he enjoys his own £575,000 wage and ordinary British people have seen their mental and physical health deteriorating due to food prices – a new study published at the end of last month has confirmed.

And this is the same Mr Hunt (who runs this country’s finances but has never spent 24 hours employed by any financial institution) who a week after he said this, reversed his position completely at the Mansion House. And the same Mr Hunt who tried to run for prime minister on a 12.5% corporation tax rate, but once lost and made Chancellor was happy to say we desperately need the 25% rate he brought into force on 1st April last.

Mr Hunt has also failed to do anything for renters (although he now seems to be working on something), who are just as vulnerable and even more affected by the Bank of England’s actions as are homeowners.

Will the Bank of England actually attempt a 14th interest rate rise? Mr Bailey and the rest of the monetary policy committee would be absolutely bonkers to do so, of course, given that the first 13 have done nothing whatsoever to curb inflation, nor protect the pound against the dollar. All they have done is destroy the British economy, the mortgage market, the property market, the rental market, the Bank of Mum and Dad; the prospects of youth generally, and the lives of literally many tens of millions of Britons.

Unpopular and under fire

Mr Bailey is now so unpopular among other economics and finance experts, and the subject of criticism from, just to name a few; the head of one of the UK’s largest mortgage lenders, NatWest, and a former deputy governor of the Bank of England himself, urged the BoE to freeze interest rates last week to ease the impact on homeowners – but they didn’t listen. Mortgage brokers have asked for Bailey’s resignation; Samuel Mather-Holgate, an independent financial adviser at Mather and Murray Financial and Graham Cox, Founder of the Self Employed Mortgage Hub. Matthew Lesh, the Director of Public Policy and Communications at the Institute of Economic Affairs wrote for the Express in May that The Institute of Economic Affairs’ Shadow Monetary Policy Committee concluded that no further rate rises were necessary to slow down inflation.

Political economist Richard Murphy wrote recently,

“It is their own interest rate rises that are now stopping inflation falling by creating an upward inflationary cycle.” 

Launching a report on Mr Bailey through her True and Fair Campaign, Gina Miller asked for a review of the Government’s appointment of the Bank Governor. Alex Brummer, respected long-time City Editor of the Mail/This Is Money (the World’s number one money website) calls him “the blundering Andrew Bailey” and stated in an exclusive interview with me that he is not even an economist and “does not have the intellectual capacity for the role.

I have no faith in the Bank of England and the British Government to fix the current situation, as they are far too dug into their position now to listen to anyone. They must feel they have nowhere else to go. Bailey has only one solution in search of a problem it will solve – raise interest rates. Even less in the Loyal Opposition to step in and do better.

Secret meetings and sticky situations

Poor Mr Bailey is under such attack from so many quarters now, I understand he may be having secret meetings with the Just Stop Oil protestors; he apparently wants to learn how to glue himself to his chair at the Bank of England in Threadneedle Street, probably the only way he can really help the BoE reach their green targets by 2040.

Mr Bailey has also been very busy otherwise; the Governor is so concerned about British youth that he went to the CBBC children’s show Newsround to talk about inflation, interest rates and their impact on young people. And, by the way, as we are speaking about little children and inflation, and Bailey speaking to them, this makes me think that this is what he does, along with Sunak and Hunt et al, with all of us, as well.

In other words, dear readers, how the hell do they all get away with it?

We wouldn’t let a football manager onto the pitch for a 14th match with their playbook from the previous 13 they just lost. We couldn’t see the British Army letting a Colonel lead troops into battle when they’d lost the previous 13, could we?

No, of course not, and the reason it happens here is because we, the British public, are like little children when it comes to hearing about economics-arcane, filled with impenetrable buzzwords and camouflaged with plenty of BS.

And it all works so well that the Government can even make conflicting announcements freely. Firstly, it has almost £2bn meant to solve the housing crisis that is giving back to the Treasury because it cannot find where to spend it and, at the same time, if it considers giving the 6.5% public-sector rise they seriously have to consider, this will have to be funded by £5-6bn of public sector services cuts. They don’t even mention that this could be reduced by £2bn. The two stories are not even connected, and the media and the public say nothing. It is an absolute disgrace in an age of supposed modern communications and transparency.

Whenever you start to talk about this stuff (watch the evening news) people’s eyes start to glaze over. I don’t know who decided to call this “interest”, but they should surely be prosecuted for false advertising. And then the media think they see the public buying into this stuff, and the markets follow quickly, and it becomes institutionalised. And then it’s all nailed down real nice with a fine Mansion House Dinner, filled with thrilling speeches and finery like a coronation.

Something about royalty and new garments, methinks.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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8 Responses to The Bank of England’s Inability to Tackle Inflation (Roger Gewolb)

  1. John Mather says:

    RPI not looking good (unless you have an RPI+ return)

    2022 APR 13.1
    2022 MAY 13.7
    2022 JUN 13.7
    2022 JUL 14.5
    2022 AUG 14.8
    2022 SEP 15.4
    2022 OCT 19.9
    2022 NOV 19.9
    2022 DEC 19.3
    2023 JAN 19.2
    2023 FEB 19.8
    2023 MAR 20.2
    2023 APR 13.1
    2023 MAY 13.7
    2023 JUN 13.7

  2. byronmckeeby says:

    for those wishing to check the Leeds calculations about an effective mortgage rate of 45.1%

  3. Bob Compton says:

    What would Mark Carney have done if he were still in post?

  4. Peter Tompkins says:

    The Leeds figures look a bit odd. It looks as if in 1980 a person had a 100% mortgage loan of about 110% of their salary but that has moved to 8 times in 2022. In practice, of course you won’t get a multiple of 8 times and you can only buy the property with the help of the bank of mum and dad. What we really need is an end to housing inflation, lots and lots of more house building and a rerating of house prices to something nearer to the ratios we saw 40 years ago. Not a popular move with older voters looking a paper property values which are beyond the reach of the next generation. So I am not optimistic we will see sensible politics on this one for a long time.

    • byronmckeeby says:

      As someone who bought a house in 1980 (and sold it at a profit seven and a half years later), with a mortgage from the Leeds Permanent too (!), I also tried to make sense of their figures, Peter, as follows:

      If £2,037 is the 1980 cost of an interest only mortgage at a rate of 15% then the implied principal is £13,580, about 65% of the average house price and only about 75% of average disposable income. I presume you have assumed some capital repayment to get to your 110%?

      (My own experience in 1980 was a 95% endowment mortgage with the deposit coming from my bank, not my parents. Bank base rate was 16% when I applied but 14% when I drew on that overdraft. Bank base rate was just below 10% when I sold up in 1988. My disposable earnings moved from around or slightly below average in 1980 to well above average by 1988, in fact to more like the 2023 average, but these 1980s were years of high inflation and my career was generally in an upward track at the time.)

      If £16,979 is 2023 interest at 6.43% then the implied principal of £264,060 is about 90% of average house prices and about 7 times average disposable income, not 8 times, but I agree is unlikely to be offered to most even while bank base rates are now “only” 4-5%.

      (Are endowment mortgages a thing of the past by 2023?)

      I fear we (or, rather, the Leeds) are guilty of using averages in their figures when the distributions of typical terms on offer and being accepted may be better understood using other statistical measures such as modes, and also understanding what other collateral may be being taken into account.

      When did we ever see “sensible politics” with regard to housing?

  5. Peter Tompkins says:

    A comment of a different nature. People are coloured by their own experiences. So the pretty complete intolerance of inflation in Germany for the last 70 years is a result of the trauma inflicted on German citizenry by their terrible hyperinflation in the 20s which left so many families ruined financially by being in the wrong place at the wrong time.

    I wonder about the degree to which the firm fight against inflation seen by the likes of Jeremy Hunt is coloured by the fact that as children they saw the experience of inflation in the 20%+ region and how difficult it was to shake it off. For all the academic arguments that inflation can be managed, it bears down very differently on all of us and the world is much easier to cope with when we drive it out of our system. So – perhaps because of my age – I lean towards the way the Bank and Treasury are trying to bear down on inflation as I would like to look to a future when we can enjoy price stability again, with all the confidence that will give us as pensioners and consumers.

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