Blog 2023 Malcolm Blair-Robinson

QE in various forms is now very much part of the economic conversation, especially in connection with a fresh approach to financial issues by the new leadership of the Labour party. Dynamic Quantitative Easing remains under government, not bank, control and targets specific investment projects without borrowing, interest or repayments. It can reboot the economy, boost manufacturing and exports and enable sustained growth of real national wealth shared by all, rather than just asset inflation which is the downside of ordinary QE. If you want to find out more you can enjoy a lucid explanation of the original idea from the link below.

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Economic growth is slowing. Inflation is historically low. House prices are rising at an unsustainable rate of 9.6%. Unsecured consumer debt is rising. Manufacturing is falling. Interest rates are to remain at tantamount to zero. Sterling is rising. The Bank Of England got its forecast, now given the smoochy term of ‘forward guidance’, wrong again. None of this is good news as all of it one way and another projects a slowdown in growth which will derail the Chancellor’s own forecasts.

Somehow over the years we have drifted from a position where government had some input into the direction of the economy, to one in which it is reduced to forecasting and distributing whatever turns up. Because the economy is driven by asset inflation and shopping with very little creation of new wealth, what turns up is never enough to pay the bills. Moreover central bankers themselves now admit that too much is expected of them; they are reluctant to use their powers to take what are essentially political decisions about the economy, so they do not take any.

In the case of the Bank of England, interest rates should have risen as soon as the initial financial emergency was contained, not least because savers need to earn. Additionally there was a clear case to treat personal borrowing differently to business borrowing, requiring a mortgage rate higher and separate to bank rate. As a consequence of all this silly forecasting and lack of action, the financial authorities are now stoking the problems rather than helping them.  It is imperative for sterling to fall and that would normally have been achieved by reducing interest rates, but there is nowhere meaningful to go when they are stuck at .5%. Moreover there would be no dangerous housing bubble in the South East if the cost of mortgages had risen earlier.

So here we are with inflation falling and house prices rising, unemployment rising and manufacturing falling, growth slowing and sterling rising. The Bank of England governor describes this state of economic affairs as robust. Really? Are you sure about that? Doubtless the Chancellor who appointed him will deliver another riveting parliamentary performance when he presents his Autumn Statement. We know already what the centrepiece will be. Another forecast.