Huw Pill, the chief economist at the Bank of England, is reported by brokers Hargreaves Lansdowne to have said something like this yesterday:
Inflation is not expected to veer significantly away from the target of 2% although a slight creeping up of prices is expected towards the end of the year. However, what continues to keep some policymakers at the Bank of England hot under the collar is the tight jobs market, which has meant wage inflation has stayed steamy. Although unemployment has edged up to 4.4%, average wages (excluding bonuses were still rising at 6% in the February to April period). Elevated inactivity rates, partly due to high numbers of long-term illness are partly to blame. The concern is that if this pay pressure continues employers will pass on the cost of higher wage bills and push up the price of goods and services.
For reasons that are hard to explain, his speech is not on the Bank of England website but is reported in the FT without the detail noted above.
What does this mean? Three things.
First, interest rates are not coming down soon, if Pill gets his way. Apparently, inflation at 2% or thereabouts is not enough to justify bringing interest rates down from 5.25%.
Second, the Bank of England is very obviously unhappy that unemployment has not risen enough to remove demands for pay rises, and so they are intent on keeping the misery in the UK economy going for as long as possible until more people are forcibly out of work. People have not suffered enough for the false dogma of Pill and his colleagues at the Bank, as yet.
Third, Pill is determined there should be no growth in the economy, just at the time that the Chancellor is pinning every hope she has on growth.
This last point is, in some ways, the most important if I can, for a moment, ignore all the human misery Pill is intent on imposing.
Recall that in September 2022, the big accusation against Truss and Kwarteng was that they proposed policies that were in direct conflict with those of the Bank of England. This resulted in the appearance that no one was in charge of the economy and that no one knew what was going on. That is what is also happening here.
Pill is demanding more austerity, higher unemployment and lower growth.
Reeves is demanding more growth.
Only one of those two directly contradictory policy goals can be achieved, and someone will end up with egg on their face. Given that Reeves is also determined to uphold the appearance of the Bank of England being independent of her, it would seem very likely that she is the one with the greatest probability of suffering that fate.
My point is that she could avoid this.
First, the Bank of England's independence should end. It is now very obviously (as obviously as when Truss was in office) trying to upend government policy, and that is unacceptable.
Second, in that case, the Treasury would have to take back control of interest rates, quantitative easing, and quantitative tightening, leaving the Bank to continue with its bookkeeping and regulation.
Third, this confusion has to be brought to an end very quickly unless Labour's economic policy (such as it is) is not to go down in flames, with the whole credibility of this government in freefall close behind it.
What a mess.
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Rachel Reeves writing another Labour Party suicide note with her determination to keep the corrupt Bank of England independence (I nearly wrote impedance). I’m starting to become quite pleased how many suicide notes Scammer’s government is starting to write so soon. Here’s Streeting’s:-
https://www.theguardian.com/society/article/2024/jul/11/wes-streeting-write-prescription-nhs-independent-investigation
See post just made on the blog
There is something missing from all this: a forensic cross examination of Pill with respect to the various rationales he uses to underpin his support for high interest rates. Whilst assorted BoE types appear in front of various House of Commons committees, the MPs for the most part lack the capacity to cross examine Pill in the fashion needed.
My guess is that Pill would robustly deny “Pill is determined there should be no growth in the economy” – but a cross examination would show that the policies he (and other BoE ciphers) support, would, ipso-facto, lead to such a result. The problem is that Pill & his colleagues are never corss-examined by experts, light is never shined on them – instead for the most part they sit in the BoE temple and issue prognostications from on high – “power without responsibility – the perogative of the harlot through the ages” (Baldwin 1930s).
Thanks, and much to agree with
Sixteen of the thirty five OECD countries have not seen real wages return to pre-pandemic levels. If wage push were the critical factor in inflation, then this would not be the case.
All the metrics are that BoE deflationary interest rate policy is simply increasing unemployment.
The truth is that overly high interest rates serve the interests of the financial sector and the BoE are supporting the exertion of City control over Labour macroeconomics, as Labour has always feared the City, to keep the pressure on the Treasury.
It really does look as if the BoE are behaving as City harlots.
But without BofE independence, who will Reeves have to blame when growth doesn’t materialize?
Never has the phrase ‘a bitter Pill’ been more aposite!
Thank you and well said, Richard and readers (so far).
Pill came from the ECB and is a disciple of Ottmar Issing and German ordoliberalismus.
Pill and Issing are ex Goldman Sachs.
The crisis of legitimacy that many former civil servants and I have discussed over a decade or two is coming.
I agree
For those interested:
https://www.bankofengland.co.uk/-/media/boe/files/about/people/huw-pill/huw-pill-cv-2021.pdf
Readers will be unsurprised to know that he has a PPE. His list of publications doubtless make for interesting reading & possibly there are plenty of skeletons, if not hostages to fortune sitting there to be mined.
Overall, the CV looks like that of an academic that has never worked outside of government/academic institutions – gosh, what could possibly go wrong eh! – the UK & its serfs as the experiment and Huie and the BoE trying out their theories…. “now don’t worry, this won’t hurt much & its for your own good” style of (whilst dreaming up another paper that he can write).
If you log into the regular BofE briefings by Pill for us peasants, you’ll have all your worst fears confirmed.
Its not clear that there are any renegade, economically literate MPs in the House able snd willing to challenge. Unless some could be briefed and supported?
We have to find them …..
Richard,
what would the short term effects of the BoE losing its independence?
Would the £ drop?
Would our credit rating change?
Would that in itself drive inflation or deflation?
Undoubtedly long term it would be better but I’m curious how such a change would effect money markets.
I will address this in a post in the morning
There are a lot of things one could say; most of them rude…… but for family reading I will constrain myself.
First, he does have a point in that base effects (the effect that guaranteed that inflation would fall as it has done) do suggest that inflation will, all other things being equal, nudge higher. But, the “nudge” is a small one and “all things” never are equal.
Second comparing rates of pay increase with rates of price increases (ie. inflation) is wrong. We need to look at absolute price and wage levels rebased to some “neutral” (ie. pre-pandemic) point in time. I suspect that recent increases are merely clawing back prior inflation.
Third, our economy is long overdue a rebalancing away from profits to wages – this should not be resisted.
Fourth, rates at 5.25% are already high (real rate of about 3%) which is very restrictive and, given the time lags involved, need to be cut now to prevent serious recession in 2025/26.
Finally, how ever tempting, I think taking the BoE under HMT control would be the wrong move (tactically) and too controversial. There is another path that might work. Reeves just has to say something along the lines…. “given the extremely tight monetary policy operated by the independent BoE we will respond with looser fiscal policy. We will settle public sector pay claims generously, we will fund public services properly, we will rebuild our infrastructure”… with the unstated challenge “raise rates if you dare!”…. and they won’t.
Much to agree with, but I think the confrontatiion route would be worse and more damaging
We do risk recession right now
And if the Bank of England wants that then there is no doubt it must go
I am not sure what the correct route is.
Fundamentally, an independent BoE makes no sense as fiscal and monetary policy need to run in tandem by democratically accountable people; however, politically, this would be a difficult move.
How do we get to some reasonably acceptable solution without ruffling too many feathers?
I will do a blog on this, maybe tomorrow
The reasons for the “nudge higher” I leave you to explain. It is however evidence that BoE policy never grappled effectively with the causes of inflation in the first place. What that should tell us (not least about the BoE), I leave you to explain. Personally, I draw the conclusion that i must I must live in another world…….. a real one. I shall not burden you with explaining that ….
The second half of 2023 saw very low CPIH increases. For example, July 2023 number was -0.4% so, if we assume a July 2024 number of 0.1% (which, if annualised would yield a rate well below target) then the YoY rate would jump by 0.5%… cue for Huw Pill to say “I told you so”. It is staggering how simple maths can be used to such nefarious aims.
On a separate note US inflation has fallen to 3% in data released today. Now, 3% may not sound that low but if you exclude “shelter” (rents and (mainly) imputed owner/occupier rents) the rate is 1.8%….. which is below target. I need to scour the UK data but I suspect there is a similar story. The point being that housing costs are being boosted by high rates… as Richard has observed before.
Huw Pill needs to THINK rather than just trot out theories that have been busted by reality.
Agreed
I think that true here too
Rents are running at 7%
On the idea that we should have a Treasury Minister counteracting BoE policy, because (for reasons that are obscure) it is a good idea that the Treasury is pulling in the opposite direction to the BoE (and that makes any sense) is a concept that has lost me entirely.
Already the Labour proposition is falling part. NHS with no usable answers, just more reports. The Water companies and Ofwat are pure farce. There is no argument for nationalisation, according to the responsible Minister. Really? I mean, really? The cost is prohibitive – because the companies are worth….. what? Let us assume they were in a real market, and consumers refused to pay their absurd price rises (as they would if they were not monopolies in a rigged market to rip everyone off). They would collapse; therefore, we already know their real market value. Meanwhile, the prisons are in melt down. Energy prices are rising this winter. Defence spending is a serious problem. Housing and homelessness are in crisis, and we are going to fix it through planning changes, but not by over-ruling local communities. And not with compulsory purchase of dead sites in city centres. We know where this is going, already: nowhere.
This is farce. One week in.
I will comment on Scotland and Labour, when I stop laughing at the non-sequiturs.
There it is, almost in plain sight – “Their effective preference is for class war over financial stability” (as Ann Pettifor recently put it).
Seems now they’re barely bothering to hide it with jargon and euphemisms, so entrenched is the institutional groupthink.
I agree with Ann