Interest rates are the tiller of an economy. They steer the course set by the democratic government tasked with guiding the national financial well being. The helm was handed to the Bank of England twenty years ago. For a while it steered a steady course with rises and falls according to need, guided only by the beacon of the inflation rate. The fact that there is a lot more to charting the right course than the inflation rate was overlooked by the Brown led Treasury and the Blair led government. So when the credit crunch came the economy hit the rocks. It is still bumping about in the shallows at growth rates previously thought of as flat lining.
The Bank of England offers a constant narrative of pending or deferred decisions to raise rates, but it never happens. It has not happened for so long that there is no certainty what will happen if the tiller once more is brought into action. Will the mechanism fail and the ship drift to disaster? Will households and businesses face ruin because they have no margin for higher payments? Nobody knows. Least of all the procrastinating Bank.
This is how the system is supposed to work. Interest rates rise to choke off inflation pressures and especially asset inflation. The return on savings and investment for wealth creation increases. The productive economy starts to grow creating new wealth, while the asset inflating economy shrinks. Stirling rises potentially sucking in imports. This is offset printing more of it, not for use by markets, but to fund an economic reboot of the productive workforce. A combination of printing and interest rates creates enough money supply to oil the economy, while at the same time positioning sterling’s value within a market trading profile which discourages asset inflation and boosts wealth creation, i.e. a real boost to GDP. That increases the tax flow to the Treasury, reducing the deficit and providing for properly funded public services. That increases popular spending power, which further grows the economy.
It is not that difficult. But the decisions are political. That is why they should never have been given to the Bank of England to make. And why now they must be taken back to government, whatever shape of Brexit, or even if Exit Brexit.