SMPC coverage

The SMPC has got some good coverage again this month.

The BBC article led on their website Thursday 3 August, which is the most-read UK news website. It’s also been mentioned on various BBC radio channels along with Trevor’s appearance on talkTV.

Interest rates are expected to rise for the 14th time in row as the Bank of England continues its battle to control stubbornly high price rises. Most economists have predicted the Bank will increase rates to 5.25% from its current 5% at midday on Thursday. That would mean higher interest rates on mortgages and loans for some people, but also higher savings rates.

UK inflation, the rate at which prices rise, remains elevated and is putting households under pressure. Free market think tank the Institute of Economic Affairs (IEA) said the Bank should wait for previous interest rate rises to take effect before raising rates further. ”It will take some time for previous rate rises and falling global commodity prices to feed into lower inflation. “Further rate rises are unnecessary and could do some economic damage without lowering inflation any faster. The UK economy is on the precipice of a sharper slowdown,” said Trevor Williams, a member of IEA and former chief economist at Lloyds Bank. (BBC News)

We’ve seen the fastest rise in interest rates in modern history as the Bank of England tries to bring down inflation, which is running at 7.9 percent, to its 2 percent target. But because prices rose less than expected last month, some — including the Trades Union Congress and the Institute of Economic Affairs, which don’t often sing from the same hymn sheet — have been urging the bank to keep the base rate at 5 percent. (Politico)

ECONOMISTS are warning the Bank of England not to hike interest rates again today — amid fears of a slowdown. Officials are predicted to raise the base rate for the 14th time in a row to 5.25 per cent, adding yet more to monthly repayments. But the Institute of Economic Affairs urged governor Andrew Bailey to wait for past rate rises to take effect before hiking up mortgages for millions. Trevor Williams, chair of its Shadow Monetary Policy Committee, said it is “unnecessary and could do some economic damage without lowering inflation any faster”. (The Sun/Scottish Sun – p.16)

A group of independent economists that shadow the Bank of England’s Monetary Policy Committee (MPC) have called for interest rates not to be increased further or risk harming the economy. The call comes as the Bank of England is expected to put up the Bank Rate today from 5% to 5.25% in what could be the last but one rise now that inflation appears to be heading downwards. The Institute of Economic Affairs’ Shadow Monetary Policy Committee (SMPC) said that there would be no need for today’s increase because of weak growth, a weakening labour market and the easing of supply-side pressures.  One dissenting member argued that a further hike of 50 basis points was necessary to prevent inflation from “becoming embedded in the economy”. A majority of the SMPC also voted to pause Quantitative Tightening (QT) – a contractionary monetary policy that aims to decrease the money supply and slow the economy. This marks a shift from the SMPC’s May meeting when only two members voted to suspend QT entirely.  The SMPC was among the first groups to warn that loose monetary policy during the pandemic necessitated higher interest rates in July 2021. However, the Committee now says further monetary tightening should be paused until the full impact of recent rate rises and quantitative tightening becomes clear. The members, nevertheless, cautioned against an interest rate cut on the basis that the Bank of England has lost too much credibility in tackling inflation to do a volte-face. SMPC members highlighted the reduction in lending to companies and financial institutions and the risk of a “payment shock” as 1.6 million fixed-rate mortgage deals are set to end by mid-2024 – resulting in some reduction in household spending. They also noted that headline inflation rates are already beginning to fall across developed economies. Trevor Williams, chair of the Shadow Monetary Policy Committee and former chief economist at Lloyds Bank, said: “It will take some time for previous rate rises and falling global commodity prices to feed into lower inflation. “But, in the meantime, further rate rises by the Bank of England are unnecessary and could do some economic damage without lowering inflation any faster. “The UK economy is on the precipice of a sharper slowdown. There has already been a contraction in the money supply, with less liquidly available for loans, lower house price inflation, and slowing economic activity, as shown in the sharp fall in the Purchasing Managers’ Index (PMI) for manufacturing.” (Daily Business)

ECONOMISTS are warning the Bank of England not to hike interest rates again today — amid fears of a slowdown. Officials are predicted to raise the base rate for the 14th time in a row to 5.25 per cent, adding yet more to monthly repayments. But the Institute of Economic Affairs urged governor Andrew Bailey to wait for past rate rises to take effect before hiking up mortgages for millions. Trevor Williams, chair of its Shadow Monetary Policy Committee, said it is “unnecessary and could do some economic damage without lowering inflation any faster”. Earlier this week, UK lenders cut their fixed mortgage deals, suggesting rates may be close to peaking. But there are signs the UK economy is slowing — with house prices last month falling at their fastest annual rate in 14 years. (The World News)