The pressure on the Bank of England to slash interest rates is mounting – if, indeed, pressure can be exerted on an independent body. The list of politicians who have near-enough called for a dramatic reduction in rates includes Gordon Brown, Alistair Darling and George Osborne. And today, in a persuasive article for the FT, Martin Wolf also states the case for a hefty cut. The whole thing’s worth reading, but here’s the crux of Wolf’s argument:
“So what is to be done? The starting point has to be monetary policy. My increasingly strong view is that the MPC must, at this juncture, rethink its stance from scratch. It cannot make sense for US rates to be at 1 per cent, while the UK’s are 4.5 per cent. In present circumstances, I would like to see UK rates down to 2.5 per cent.
Obviously, there is some risk of a further sterling collapse. In current circumstances, this has to be ignored. In fact, determined action may strengthen sterling, not weaken it. In his Mais lecture on Wednesday, Alistair Darling, the chancellor of the exchequer, helpfully gave the MPC the green light to ignore short-term inflation overshoots. He went out of his way, instead, to stress that the Bank enjoys ‘discretion about the horizon over which inflation is brought back to target’.
So long as the Bank enjoys room to cut interest rates, it seems unnecessary to take any large discretionary fiscal actions, particularly since the fiscal position is sure to look ghastly.”Will these calls be met by the Bank? We’ll just have to wait until 6 November to find out.
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