The Bank of England is in the mire, abused for having moved too slowly to control inflation.
This week Governor Andrew Bailey made several big confessions. The Bank’s forecasting models are in error to such an extent they are now being ignored, he said. Moreover, the experts at Threadneedle Street have a communication problem.
There are “very big lessons to learn”, Bailey conceded. It feels as if Bailey has been battered into these sort-of apologies by the weight of economic commentary and by inflation staying higher for longer than he thought.
The old narrative, which at least was consistent, was that no amount of rate-rising in 2021 would have prevented inflation. It would just have made life harder for folk already struggling.
In which case, ratcheting up rates now hardly looks any better, since inflation is going to go its own way, whatever the Bank does.
As we report today, there are 1.4 million homeowners whose fixed rate mortgage deals expire this year (I’m one of them). If rates keep rising, a £1500 mortgage will soon cost about £2000 as fixed deals are renegotiated. Replicated across all 1.4 million of us, that’s a huge chunk of money no longer available to spend on goods, services, holidays.
That in turn must be a hit to the economic growth the Government is betting on to up its tax take and cut borrowing.
The Prime Minister has made halving inflation from 10% to 5% one of this key goals, like he can influence things the Bank cannot (he can’t, to be clear). It looks possible his target will be missed, while borrowing costs rocket.
It’s a mess.