The BoE yesterday hiked base rates for the 14th meeting in a row to 5.25 percent and markets reckon there is more to come with rates peaking at six percent by year end. Six million mortgage holders now face paying hundreds of pounds more every month for the next three years, as base rates won’t drop below five percent until 2026.
Higher borrowing costs are causing havoc among businesses, too, with popular homeware retailer Wilko latest to crack. It faces administration putting more than 12,000 jobs at risk.
This is only the start of the pain the BoE’s rate-setting monetary policy committee (MPC) is inflicting on the country, as it battles to control an inflationary crisis fuelled by its own arrogance and complacency.
Incredibly, the BoE’s own figures show that yesterday’s hike will have almost no impact on inflation anyway, says Laith Khalaf, head of investment analysis at AJ Bell.
“BoE projections say inflation will fall to 1.5 percent in three years if it hikes rates to six percent. If it leaves them where they are, it will fall to 1.4 percent.”
In other words, there is no point to the pain. Or to be precise, one-tenth of a percentage point, which is hardly enough to justify the BoE’s scorched earth policy.
Prime Minister Rishi Sunak is already on course to hit his five percent inflation target this year, with further falls to follow next summer.
Khalaf says BoE governor Andrew Bailey has to stop this madness rather than hiking rates again in September as most analysts expect.
“Sometimes doing nothing is the hardest approach, but there is increasing evidence that’s the path the Bank should now be following.”
Khalaf adds: “Britain better prepare for economic stagnation because BoE figures show almost no growth in the coming two years.”
He’s not alone in slating the BoE, a heap of experts are watching in horror as its policymakers continue to make one howling error after another.
Suren Thiru, economics director at the prestigious Institute for Chartered Accountants in England and Wales (ICAEW), called the latest rate hike “excruciating” and accused the BoE of being “too fixated on backward-looking data”.
“Given that most of the 14 interest rate rises are yet to filter through into the real economy, the Bank risks over-tightening, needlessly adding to the risk of recession.”
Thiru added: “With the Bank of England expecting inflation to fall quickly, the case for further interest rate hikes is diminishing fast.”
Julian Jessop, economics fellow at the free market Institute of Economic Affairs, is another calling for a pause. Yesterday, he said the like a frog slowly being cooked by ever higher interest rates as the BoE does too much, too late.
The MPC has been guilty of groupthink, only talking to itself while ignoring any data that interrupts its narrow worldview. Its last original thinker was BoE chief economist Andy Haldane, who quit in 2021.
It’s too scared to step out of line with the US Federal Reserve, which is also aggressively tightening rates but faces a much stronger economy than ours.
The US is on course for a soft economic landing. Ours is going to be very hard, if the BoE has its way.
Higher rates will wipe out thousands of viable businesses, and destroy the lives of millions of homeowners who bought overpriced homes based on BoE assurances that borrowing costs would stay low.
Worse, the MPC being deliberately blinkered for ideological reasons, ignoring supposedly right-wing “monetarist” economists warning of a deflationary meltdown ahead.
Monetarists believe that when the amount of money in circulation falls, a recession will duly follow corner. Terrifyingly, money supply has shrunk by 7.4 percent in the last six months.
Simon Ward from Janus Henderson, has been saying for months that monetary tightening is “overkill” and will trigger a needless recession.
Incredibly, two MPC members wanted to raise rates to 5.5 percent yesterday. They’ll no doubt have their way next month.
Everything now rests on July’s inflation figure, due on August 14. Millions will be watching that in fear and trepidation. Unless consumer prices fall sharply, the fixated BoE will deliver another needless punishment beating.