MAGGIE PAGANO: Bank of England wrong again on interest rates
MAGGIE PAGANO: Bank of England wrong again on interest rates
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Once again, the Bank of England missed a trick by not cutting interest rates earlier this week, an error which may well come back to haunt the Old Lady. By getting its timing so wrong, the danger now is that rather than gently bringing down rates over the next few months – as it had hoped to do – the Bank will be forced into having to slice rates salami-style to rescue the economy from recession. Or worst of all worlds, from stagflation.
Cutting rates from a position of weakness, rather than being ahead of the curve and in control, is never a great strategy. Which is why the Monetary Policy Committee's decision to hold rates at 4.75 per cent is all the more bizarre as it also goes against the global trend.
Missing a trick: Bank boss Andrew Bailey. Both the US Federal Reserve and the European Central Bank (ECB) have been more aggressive, cutting rates recently to stimulate growth and stave off recession. What's more, the ECB says it will continue to cut, another factor behind the huge spread between UK and German ten-year bond yields, and the rise in UK gilt yields to Liz Truss-style levels.
Why then did Andrew Bailey, the Bank's governor, and five others of the nine-member Monetary Policy Committee (MPC), not budge on rates? And why is there such a split, with three members – Swati Dhingra, Dave Ramsden and Alan Taylor – voting to trim rates by 0.25 percentage points?.
