I shared this thread on Twitter a few minutes ago:
There appears to be a collective sigh of relief around the economy because the Bank of England has held its base rate at 5.25% today. But let me assure you that the insanity of their interest rate policy is continuing. A short thread....
I would love it to be the case that the Bank of England had at last begun to see sense on interest rates and that it had begun to end its ruinous decision-making that has as its one simple goal the driving of the UK into recession, but it really has not.
I do, of course, agree that the ending of interest rate rises, for now, is good news. But this was achieved by the slimmest of margins. There was a 5-4 split on this issue, with stability only being delivered by the vote of Governor Andrew Bailey.
That decision to hold rates might be better than an increase, but it was still the wrong decision. The right one would have been to cut rates. High interest rates are themselves driving inflation now - not least through their impact on rents.
High interest rates are also pushing up business costs - and so keeping price rises in the pipeline.
But worst of all, these rates are devastating for the households already facing them, or which will do so in the coming year. Terrifying increases in mortgage costs are devastating lives, and the problem is that the Bank of England indicated that this will continue today.
They did this by also deciding, unanimously, to sell £100 billion of the government bonds that they bought during the Covid crisis. There is literally no need for them to do that, except for one thing. This is that selling these bonds will support continuing high interest rates.
As markets are already indicating, they would like rates to go lower. Slight falls in mortgage rate offers suggest that mortgage lenders think this is the right direction of travel. It is exactly what should happen. The Bank of England clearly thinks otherwise.
By selling more government bonds the Bank will flood the market with these so-called gilts. The result is that their price will be lower than they would otherwise be. And in the case of these bonds there is an inverse relationship between the bond price and interest rates.
That is because the actual interest paid on these bonds is fixed throughout their life, but that means that if their price falls then the apparent interest rate on them appears to rise. There can be no doubt that this is what the Bank of England wants.
By selling far more of these bonds than the financial markets will really want to buy over the next year what the Bank of England is doing is forcing their price down to provide completely artificial support for continuing excessively high interest rates.
There are two reasons why this is a terrible idea. The first is the obvious one, which is that the economy very clearly needs a restoration of low interest rates to save businesses, employment and people who face the devastation of losing their homes because of mortgage costs.
The other is that if the government was to issue more bonds into financial markets it should not be doing so just to keep interest rates up and to cancel cash created in 2020 by the Bank of England. It should instead be doing so to help fund investment.
What do we need investment in? As yesterday's speech from Sunak made clear, we need investment in heat pumps, heat pump manufacture, and the National Grid upgrades to get renewable electricity online. Those would provide a good reason for issuing debt.
But we are not going to get anything like that for the debt issues that the Bank of England is going to make. Its sole intention is to take money out of the financial markets, create a credit squeeze and continue the misery of high interest rates.
Economic madness, and economic sadism, does not come more blatant than this. Instead of funding the economy and future we need with new sales of bond issues the Bank of England is going to issue bonds to make sure that we cannot have the future we need.
There is, then, nothing to cheer about in the Bank of England announcement today. All there is are long years of high interest rates to look forward to when hope, the chance of a better life, and personal well-being will be bled from the country by the Bank of England.
And Labour has so far not indicated its intention to intervene in this madness and is instead stoutly defending the right of the Bank to impose such misery on us all.
We need a new economics. We need a new politics. We need a chance to live. And right now, I can't see where those things are coming from. There really is not a lot to celebrate in today's decision from the Bank of England as a result.
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My mortgage is up from 1%. It’s going to be a struggle. But Bailey doesn’t care. His masters are already rich as Croesus (a Lydian King who incidentally made a fortune from exploiting the population, and making a literal mint from gold & silver coins).
Instead of seeding the economy for growth, Sunak – in league with fellow oligarchs – is keen to thrash it for husks. He lied through his expensive veneers yesterday about Net Zero. Your earlier post nailed it.
Yet I have no faith in Labour to right these societal wrongs. Tory Lite meekly u turning too on things that would improve the lives of millions. My teenage daughter is in despair. She wonders why those with true power choose to wield it so poorly. Why they wish to make people suffer needlessly. It makes them feel good, I say. Psychopathy in action.
Keep up the good work, Richard.
Thanks
I’ll try
Finance must be the servant, , and the intelligent servant ,of the community and productive industry ; not their stupid master. Quote from the NEC of the British Labour Party in June 1944.
Would that we had such gifted politicians around today. Several members of this committee sprang from the industrial working class . Including miners with little formal education, including Bevan.
Initially the “BoE” bought UK bonds on the secondary market (because the couldn’t admit that they were directly “printing” money, a.k.a. quantitative easing). In doing this, bonds were first sold to a very limited number of government approved brokers. Since these brokers knew they could then sell these bonds on at a profit to the BoE, there was a government guaranteed profit. A nice little earner if you can get it.
Now the BoE are unnecessarily selling those same bonds at a “loss” (a.k.a quantitative tightening). The private purchasers can then make a tidy little profit when the price rises, as inevitably it must when rates come down.
It’s so lovely to see the government give large guaranteed profits to those needy folks in the city. Thank goodness they are also able to support them by paying interest on bank reserves too.
Agreed
I now suspect that the MPC meetings are just an elaborate charade, paraded for the pathetic media. Huw Pill more or less announced yesterday’s pause in rate hikes in a speech in South Africa a couple of weeks ago.
Shocking to hear from you, though, that the Bank are quietly carrying on with their high interest rate support. Which won’t appear in the main media. I had thought that the Bank had finally realised that ecconomic harm the rate madness had gone far enough.
From conversations with a master-bricklayer friend, and reports
from the excellent ‘Building’ magazine, it’s obvious that the buildiing industry has gone from buoyancy a year ago into grave decline. An indicator for the rest of the economy, while the housing crisis worsens daily.
Thanks
“….we need investment in heat pumps, heat pump manufacture….”
I hope that I am not misinterpreting or taking this out of context, but the proposed application of Air-Sourced Heat Pumps (ASHP) is engineering nonsense. Points are enumerated for ease of reference.
(1) Circa 70% of the domestic heating market is that of replacement. The main characteristic of the housing stock involved is the relative smallness of the houses.
(2) This matters because ASHP ouput is considerably lower than the boilers/combis currently installed. In turn this means that much larger & therefore NEW radiators have to be installed to compensate for that loss of output + storage cylinders/tanks may need to reinstalled + changes to pipework, all of which renders the product & system redesign costs far too prohibitive. In most cases the installations are simply impractible.
(3) Commercial/Industrial applications are no better.
(4) HM Gov enlisted the copperation of Bosch Worcester Engineering to trial the installation of 200 ASHP units in Newcastle-upon-Tyne at minimal costs to participating householders. When those householders were told what would have to be done, they basically said NO! Only 3 units were installed.
(5) Redesign for greater output and/or using banks of ASHP simply self-defeats the effeciency & consumption objectives.
(6) There is of course potential in terms of new-build, but arguably there are better & far more cost-effective solutions, using ground-source heat pumps (GSHP) to generate electricity & heat (see point 7), to feed district heating systems using in-house Heat Interface Units &/or ASPH – no combustion & no flue required. We also now have space saving state-of-the- art electric boilers that are 98% efficient – again no combustion & no flue required – this would however require investment to strictly control the end-user costs. Then there is hydrogen (carbon-free combustion) once the teething problems of bulk production are solved, & they will be. The current crop of boilers being produced, despite some nonsense noise from the press, are “Hydrogen-Ready”. All that is required is a relatively inexpensive & easy-to-do change of the gas valve/burner assembly, only necessary because of some quite weird aspects of hydrogen combustion – no need to go into that however. There are manifold combinations of all of these possibilities that can be considered
(7) About 5 years ago, Geology, Mech Engineering & Civil Engineering departments of
of the Universities of Durham, Newcastle & Glasgow started a collaborative examination into opening up disused coalmine shafts to explore the possibilities of geothermal energy mentioned earlier & the deployment of GSHP. I entered into email discussion with the very bright young lass at Durham who is leading this collaboration. She brought up the fact that most of these old mineworkings are full of water – geothermally HEATED water
(8) This project has also involved many of the financially-constrained local authorities in the North-East & Glasgow areas & it has led to a scheme in Spennymoor (SW Durham) which in the next few years (sorry can’t be more precise) will open up 2 mineworkings & use that heated water as the basis of a district heating operation for new housing development.
(9) Right in the heart of Newcastle there is a huge aquifer with the potential to supply heat & electricity to circa 25000 dwellings (that figure is uncertain, some claims are in excess, some lower) indefinitely. In connection with those mineworkings, there are said to be more aquifers of this kind throughout the region, & doubtless elsewhere.
(10) As Del-Boy might say investment is needed “right across the plectrum”, but seriously this & the other suggestions you have consistently made is where the investment should be directed. I think that the HVAC industry, the Uni researchers, & even some local authorities are on the case & know what they are doing: the government as usual doesn’t. The obsession with AS Heat pumps should cease.
Three questions
1) Why not use heat pumps where possible (and there are ample cases where it is)?
2) What happens in areas without mines?
3) Why is no one taking any notice of the research you are talking about?
Q1….no reason why not, but remember this is a very expensive installation, comparatively speaking. In some new build AS heat pumps & underfloor heating is a good combination for instance & maybe more bulk production would bring unit prices down. I am not “anti” these machines – they brilliant. It’s just that the application to the replacement market in particular is wrong-headed for the reasons I gave. It is also true to say that viable & more cost effective alternatives already exist, will get better, & don’t forget that “combinatorial ” concept I mentioned.
Q2…there are extensive areas of the UK where disused mineworkings exist & we have a grid system + geothermal is not being proposed as the only way, but a potentially plentiful & valuable addition to solar, wind, tide, hydro (Scotland & Wales could do much more with investment in hydro) etc…
Q3…after all of the great work you have done on money & green reform over the last (20/30?) years, I must say that this question perplexes & amuses me! I have taken notice of it however & will happily bore anyone to death if they’re prepared to listen. I could send you all the links if you want, but I suspect you’ve already got enough on your plate, which is why I didn’t. If you do want it, I would be happy to oblige.
1) Noted, but I also suspect they are a partial solution
2) Noted, but how will you fix the grid?
3) Send away
Just have a think has a terrific episode relevant to this: https://www.youtube.com/watch?v=g95Moz2Ub_0&ab_channel=JustHaveaThink
(1) agreed with “partial” being the operative word. & don’t forget that idea of using combinations of devices & technologies. Change is happening constantly, with equipment coming on stream that simply didn’t exist even 30 years ago……
(2) in the immortal words of John McEnroe, you-can-not-be-serious! Infrastructure investment of course. But that means persuading the numbnuts in Westminster & Threadneedle Street to stop telling lies & indulging themselves in the electronic skulduggery that passes for a credible financial system. The latter in particular remind me of Aztec high priests whose arcane practices were so beguiling that they could persuade people to part with loved ones, so that sacrificial death could be visited on them to propitiate the gods.
(3) certainly….will do it tomorrow…right now I have an appointment with a very lonely bottle of 14% abv red ink from OZ…if you listen carefully you may hear it breathing gently in contrast to yours truly gasping noisily in anticipation of the 7pm starting pistol….forgive my sense of humour – simply a defence mechanism that enables me to keep railing against the neoliberal hordes….
Your style is unbecoming
Good Morning Richard,
Following our discussion, I have had dig around – info & videos variously appended.
(1) Research into geo-energy: I was hopelessly wrong on your question about no-one taking any notice – “pleasant surprise” at the volume of interest is an understatement. Clearly, I have not been keeping up to speed. Charlotte Adams was the “v.bright young lass” I mentioned, at Durham Uni. She is now working in the industry. Her video is below & 1hr + long. I honestly don’t think you need to view it however, given the amount of written info on the web page also below. 3 or 4 minutes of a small sample of this info will give you the basics + an indication of general direction of travel. I ought to have added that geo-energy doesn’t necessarily HAVE to come old mineworkings alone – nonetheless the sheer numbers of them, if exploited, could make a highly significant energy contribution.
Here’s a 15 min video from Charlotte – haven’t seen it myself yet! Have, ergo, left out the long on – will provide it if you want.:
https://www.youtube.com/watch?v=ctpy1SJVA8k
Web page: https://www.gov.uk/government/news/new-maps-reveal-heat-stored-in-britains-abandoned-coal-mines
(2) The project in Spennymoor, Co Durham. Having difficulty in finding out just where this project currently stands. I will ring Durham CC during the week & let you know. In the meantime, here’s some basic info + other examples:
https://anonw.com/2018/12/07/exciting-renewable-energy-project-for-spennymoor/
https://anonw.com/2023/08/03/uks-first-deep-geothermal-power-plant-to-be-built-in-cornwall/
https://www.gov.uk/government/news/new-maps-reveal-heat-stored-in-britains-abandoned-coal-mines
That’s probably enough for now? – if you want or need more info, don’t hesitate to ask.
You will have gathered that my qualfications, background, & most of my work (long since retired now) was in HVAC Engineering. The Geology bit is an amateur interest which I pursued at the OU many years ago.
Tickled by your cattle prod about my unbecoming style, I will stop the vituperation. There’s no sense in arming the Neoliberal lot with the means to demonise me. As for the drink, medical matters mean that nowadays I actually consume next-to-nowt. I will curtail the humour too – maybe. Or should I follow that v.humorous New York dictum, “The customer is always right – sometimes”?!
Thanks
I will take a look.
I sent you some material this morning but completely forgot to mention the search for natural or “geological” hydrogen sources. My apologies. No-one has previously considered this except perhaps in terms of esoteric scientific interest. That however has now changed dramatically & the search is on with a vengeance. Here’s an interesting overview from the US Geological Survey. If sufficient reserves of naturally occuring hydrogen can be found & viably accessed, then obviously the need for electrolysis, steam reformation of coal or extraction from methane (the latter two are what the fossil fuel lot want to do!) is hugely diminished. Anyway we can let the article speak for itself – there are many others incidentally on the same theme…. https://www.usgs.gov/news/featured-story/potential-geologic-hydrogen-next-generation-energy
Thanks
I will post your other reply when I have had time to read it.
Good Morning Richard
Additional Info re the concensus on AS Heat pumps hydrogen test
(1) U-tube general page just to give yoy the “flavour” of various viewpoints:
https://www.youtube.com/results?search_query=heat+pumps+the+ugly+truth
(2) detailed report featuring Martyn Bridges of Bosch Worcester:
https://www.youtube.com/watch?v=4uNKPDREa-Q
(3) details of a hydrogen test site at Spadeadam, on the border of Northumberland & Cumbria. The installers were of course aware that Spadeadam is a RAF site. What no-one apparently told them is that it is also a weapons-testing site. Can you imagine the palpitations, when, test-firing a boiler co-incided with a very a loud “boom” from a test bomb!?
https://www.ecosia.org/search?method=index&q=spadeadam%20hydrogen%20project
Richard if this info is too overwhelming, just tell me. I am all-too-aware of your very considerable workload.
A colleague is going to look at most of this….
pleased to note you have some help! if your colleague needs any more info (although there seems to be plenty to go at already) let me know or he/she by all means can e-mail me at alanpeyton46@gmx.co.uk
heat pump discussion update for your colleague:
The trial installation program in Newcastle, was also extended to other cities in the North of England. The government paid £14.6 million for 750 units & installation costs. I got it wrong when I said minimal financial input was required from householders. It was in fact entirely free-of-charge!
In Newcastle alone 4,500 applications were received, but only 13 (not 3 as I stated – should teach me not to rely on memory alone!) were fitted: the national total was just 19 units. The reasons cited hold. the best & most comprehensive video overview to watch is as point 2 in my earlier submission. i.e detailed report featuring Martyn Bridges of Bosch Worcester:
https://www.youtube.com/watch?v=4uNKPDREa-Q