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Bank Rate
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Hi does anyone have any idea if and when the Bank of England base rate will change?
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Only 2 of the current 9 members of the Bank of England Monetary Policy Committee have voted to increase the Bank Rate this year, the other members have consistently voted to maintain the current rate each month. None of the have considered a further reduction. Therefore I consider that the current miserly rate will be in place for quite some time yet!
The main problem in the UK is not the cost of borrowing, but the lack of available funds (because the banks will not lend). The main cause of the present problems is excessive borrowing by individuals, companies and government. Much of that excess came about because the cost of borrowing was relatively low. Funds dried up because too much had been borrowed, the banks were underfunded and also had had their fingers burnt because of “toxic debt”. It had nothing to do with the cost of borrowing.
The results of this excessive debt were plain to see. At individual level people were borrowing money not only for houses and big capital purchases, but also to fund current spending by running big credit card debts, run up for supermarket bills, fuel and holidays. Companies borrowed not only to invest in new plant, but also to fund current expenditure. Woolworths is a good example. A company, established for more than a century, not particularly expanding or involved in capital expenditure, but running a huge overdraft to fund current spending – a strategy which caused the firm’s eventual downfall when borrowing became tight. At government level the strategy was disastrous, with the government spending huge sums simply to fund the wage bill of the enormous (often valueless) expansion of the state sector headcount.
So to address a problem brought on by excessive borrowing, The Bank of England’s strategy was to make borrowing even cheaper. The imposition of ultra-low interest rates has failed to address the fundamental problem of lack of available funds at all three levels. Further, it (together with “Quantitative Easing”) has driven inflation to its current level of 5%. A better strategy would be to control borrowing so that only capital projects can be funded by loans (at all three levels). The idea that growth can only be achieved by making cheap borrowing is clearly flawed (three years of interest rates at 0.5% has not done the trick). And in any case, if the nation can only thrive with excessive borrowing then a drastic re-think is needed.
The results of this excessive debt were plain to see. At individual level people were borrowing money not only for houses and big capital purchases, but also to fund current spending by running big credit card debts, run up for supermarket bills, fuel and holidays. Companies borrowed not only to invest in new plant, but also to fund current expenditure. Woolworths is a good example. A company, established for more than a century, not particularly expanding or involved in capital expenditure, but running a huge overdraft to fund current spending – a strategy which caused the firm’s eventual downfall when borrowing became tight. At government level the strategy was disastrous, with the government spending huge sums simply to fund the wage bill of the enormous (often valueless) expansion of the state sector headcount.
So to address a problem brought on by excessive borrowing, The Bank of England’s strategy was to make borrowing even cheaper. The imposition of ultra-low interest rates has failed to address the fundamental problem of lack of available funds at all three levels. Further, it (together with “Quantitative Easing”) has driven inflation to its current level of 5%. A better strategy would be to control borrowing so that only capital projects can be funded by loans (at all three levels). The idea that growth can only be achieved by making cheap borrowing is clearly flawed (three years of interest rates at 0.5% has not done the trick). And in any case, if the nation can only thrive with excessive borrowing then a drastic re-think is needed.
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