Bank of England

James Mackintosh

The Bank of England has finally snapped. It is fed up with being constantly criticised for messing up its forward guidance on interest rates, and this week began what looks like a co-ordinated campaign to hit back.

Three of its policymakers have made speeches so far defending the policy, and their key points are simple. Here’s what they said, then some charts. 

James Mackintosh

Among phrases you don’t hear any much any more are:

  • Safe as houses
  • As sound as a pound
  • As safe as the Bank of England.

It shouldn’t be a surprise that all three are out of fashion, after the US housing bubble that brought down the world economy, the collapse of sterling and the Bank of England’s failure to control inflation over either the past 50 years or the more recent past, when it was aiming for 2 per cent (the blue line on the chart).

UK CPI inflation and the target

Yesterday’s UK Budget avoided the extra inflationary pressure that would have come from fiddling with the target, which should give some support for the pound. But don’t get too positive: outgoing governor Sir Mervyn King voted for a second time for more monetary easing, and while he was outvoted again, Mark Carney is widely expected to be both more dovish and more convincing. I discuss this in today’s Short View column and video, and in greater detail below:

 

The pound fell after it emerged that governor Sir Mervyn King voted for more quantitative easing a fortnight ago. James Mackintosh, investment editor, explains how investors are viewing the prospect of further easing and a weaker pound, after the FTSE 100 rose above 5,400 for the first time in five years.

James Mackintosh

Brits wanting a holiday in the sun have to stump up a lot more since the pound’s crash during the financial crisis. Even after a partial recovery, the pound remains down almost a fifth in real terms against its trading partners.

On the plus side, exports should be booming. Sadly, they aren’t. There are plenty of excuses explanations, but one stands out: British exporters have too much focus on slow-growing European economies and not enough on the whizzy emerging markets. The killer statistic is that the UK exports more to tiny troubled Ireland than to all the Brics put together.