As the Retail Price Index remains over 5% and the Consumer Price Index reaches 4%, it is reasonable to ask why the Band of England’s Monetary Policy Committee (MPC) is not raising interest rates.
The MPC’s sole remit is to keep inflation at around 2 per cent. This remit they have ignored since Lehman Bros failed in 2008. It is clear they are following not their ostensible remit but government policy, which increasing looks like inflating public and private debt out of existence.
Anyone who still believes the government guff about the MPC being independent of government needs to be sectioned for their own good. The committee is recruited as follows:
‘Monetary Policy Committee
Interest rates are set by the Bank’s Monetary Policy Committee. The MPC sets an interest rate it judges will enable the inflation target to be met. The Bank’s Monetary Policy Committee (MPC) is made up of nine members – the Governor, the two Deputy Governors, the Bank’s Chief Economist, the Executive Director for Markets and four external members appointed directly by the Chancellor. The appointment of external members is designed to ensure that the MPC benefits from thinking and expertise in addition to that gained inside the Bank of England…..
Each member of the MPC has expertise in the field of economics and monetary policy. Members do not represent individual groups or areas. They are independent. Each member of the Committee has a vote to set interest rates at the level they believe is consistent with meeting the inflation target. The MPC’s decision is made on the basis of one-person, one vote. It is not based on a consensus of opinion. It reflects the votes of each individual member of the Committee.
A representative from the Treasury also sits with the Committee at its meetings. The Treasury representative can discuss policy issues but is not allowed to vote. The purpose is to ensure that the MPC is fully briefed on fiscal policy developments and other aspects of the Government’s economic policies, and that the Chancellor is kept fully informed about monetary policy.’
The heavy hand of the chancellor can be seen. He appoints four out of the nine members, and can easily influence the selection of the others with a nod and a wink. Powerful men do not have to directly command for things to happen. They merely express a wish and leave the underlings to make it happen. The most famous instance in English history is Henry II’s “Who will rid me of this turbulent priest” which sealed the fate of Thomas A’Beckett.
The Henry II ploy also operates when senior politicians express a wish for interest rates to be left unaltered or raised or lowered. This Vince Cable the Business Secretary was at it yesterday when he ‘used an interview with Bloomberg Television to suggest the Bank of England retain its loose monetary policy.
“As an outsider looking in, I take the view of the doves,” he said. “Although you have inflation, it’s almost entirely imported. There’s not very much evidence of British inflation taking place. It’s virtually deflation.”
Mr Cable said that with the Coalition’s fiscal squeeze in full throw, tightening monetary policy was “potentially very difficult”.
Mr Cable’s views follow comments from David Cameron last month when the prime minister described inflation as “worrying”. While Mr Cameron was careful to point out that he supported the independence of the Bank of England, he faced criticism from some quarters for involving himself in the debate.’ http://www.telegraph.co.uk/finance/economics/8324233/Vince-Cable-says-interest-rate-rise-would-be-very-difficult.html
It is dishonest to say that because British inflation is being caused by the cost of imported goods and materials there is no point in clamping down on it. To do so would reduce the general inflation level because the money supply will tighten. Of course that would potentially reduce growth, but that is the choice before the government: inflation or slower growth. Ironically, at present it looks as though they are managing to achieve both as stagflation takes hold.
Deliberately inducing or tolerating inflation to devalue debt, especially public debt, is a well practised strategy by irresponsible governments. It eventually comes back to bite the countries who practise it because it destroys confidence at home and abroad amongst those who would invest or loan money to the governments or people of such a country. Inflation is theft on the grandest of scales.