Instead, it held base rates at a 16-year high of 5.25 percent despite admitting that inflation will fall to its two percent target between April and June. It claims that inflation will rise again after that but we can’t rely on the world’s worst economic forecaster on these matters.
Capital Economics is predicting that inflation fall to just 1.8 percent as soon as April and then reach an unthinkably low 0.9 percent by September.
There’s a chance it could hit just 0.3 percent that month, according to its UK economist Ashley Webb: “Big falls in the Ofgem utility price cap in April and July could mean it’s not too long before we need to start worrying about the risk of deflation.”
If he’s right, BoE governor Andrew Bailey and the BoE’s monetary policy committee (MPC) will have bungled once again.
Yet incredibly, two MPC members actually voted for yet another interest rate hike yesterday.
What’s going on in their minds?
The MPC has now completed a hat-trick of grievous errors. It kept interest rates too low for too long in the aftermath of the financial crisis, which sent house prices to the stars.
It was still pumping the market with stimulus when inflation was gathering speed in 2022, and now it’s refusing to cut them as inflation plunges.
Its biggest worry is that we’re all getting paid too much, which shows how disconnected it has become from reality.
Instead of inflation, it should be worrying about deflation.
China is a big factor here. Its economy is in serious trouble and Beijing looks set to respond by pumping up production and flooding the West with cheap imported goods.
European gas and wheat prices have already fallen to pre-Ukraine war levels, as the continent’s economy struggles and demand slumps. Even fear of Middle East conflagration can’t drive up the oil price, as the US ramps up shale oil production.
The Office for Budget Responsibility has warned that deflation is much more likely than inflation in 2024.
Deflation sounds fun – we all love cheaper stuff – but in practice it’s a nightmare. As prices fall people postpone buying stuff in the hope it will get cheaper tomorrow.
As a result, sales plunge, company profits fall, people lose their jobs which means they even less cash to spend.
It ends in a terrifying spiral, and it could be coming our way.
An interest cut yesterday would have been a massive boost for businesses and consumers, and millions of homeowners worried about paying their mortgage.
Instead, banks and buildings societies have now started hiking mortgage rates again.
A rate cut would also have eased the pressure on government coffers, by reducing the cost of servicing the interest on our inflation-linked national debt.
READ MORE: Andrew Bailey grilled by YOU on sky-high inflation and interest rates
I tried reading through the MPC’s policy statement after yesterday’s decision but had to stop because my blood was boiling.
BoE expectations are hopelessly, repeatedly wrong. Its forecasting models are so bad that last November the House of Lords woke from its slumbers last year to write a report declaring them “inadequate”.
That’s the polite term.
Bungling Bailey has promised to listen but he has clearly learned nothing.
Our economy does not require a base lending rate of 5.25 percent.
I don’t want to see a return to the area of near-zero rates, but a quarter percent cut would have been a real tonic.
Let’s hope the BoE wakes up before it plunges us into a deflationary spiral. If it doesn’t, Bailey and the entire MPC has to go. The country can’t afford them any longer.
