Yet another survey suggests that Britain is booming – this time, it’s from the Bank of England’s Monetary Policy Committee. They’re the guys who kept interest rates too low for too long – creating the last boom. It sees another boom now.”For the first time in a long time you don’t have to be an optimist to see the glass is half full,” said Mark Carney, the new BoE Governor. “The recovery has finally taken hold.”
Citi has crunched latest BoE figures (pdf) and says this envisages real GDP growth of a stonking 3.4 per cent next year and 2.8 per cent the year after, which it says is one of the MPC’s biggest-ever upgrades. (They had been expecting 2.7 per cent and 2.5 per cent for 2014 and 2015.) It’s also substantially above the consensus. Happy days.
But, here’s the thing: interest rates will still be nailed to the floor, and a nation of debt addicts will be assured another year (or two) of hair of the dog. The new Governor, Mark Carney, has indicated that he won’t raise rates until unemployment falls below 7 per cent – and today the Bank suggested that this will happen about this time next year, which is substantially sooner than its earlier guess of about this time in 2016. Nowadays, unemployment expectations are as important as inflation expectations. Below shows the MPC’s new best guess:-
But the below chart suggests base rates won’t start to rise until the year after next – too late for my liking. Savers are being crucified at present, and their wealth is being transferred to debtors. Only an idiot would put savings into a Cash ISA. Money is still being loaned from banks at sub-zero rates, stoking what looks very much like a property bubble. It’s as if the MPC is scared of weaning Britain off the drug of cheap debt – and in so doing, risks repeating precisely the same mistake it made last time.
Still, in the short term, the GDP growth boost is good news for George Osborne. He can’t use the Bank of England’s more optimistic forecasts, he has to use the Office for Budget Responsibility’s predictions, which tend to be much closer to the consensus (latest here). Is George Osborne’s recovery real or another debt-fuelled illusion? Until rates get back to normal (ie, 4 per cent), we just won’t know.
PS The below graph from the Inflation Report, a funny one, is perhaps worth reprinting. It shows information very useful to ordinary mortgage-buyers, but is annoyingly never printed in the press: when the Bank of England base rate (to which so many mortgages are pegged) is most likely to start rising. Most people think 2015. This shows how expectations have changed over the last few months.
More Spectator for less. Stay informed leading up to the EU referendum and in the aftermath. Subscribe and receive 15 issues delivered for just £15, with full web and app access. Join us.