THE Bank of England is at the heart of the City, but no one should think that it regards the Square Mile as its constituency.
One of the most admirable things about a mostly admirable institution is its ability to look beyond its rich neighbours and think about the rest of us.
When Mark Carney rocked up as governor in 2013 he pointedly made his first speech in Nottingham. This was a nudge to those of us in the cheap seats — and to bankers who thought the arrival of a former Goldman Sachs man was a result for them — about where he intended to go. Monetary policy would be skewed towards readers of The Sun rather than The Times.
To indebted working families, not the retired or the wealthy. It was important stuff, and it worked. But enough already. Time for a shift of stance, surely. All of the recent noises from the Bank and its Monetary Policy Committee members suggest it wants to cut base interest rates from the already awkwardly low 0.75%.
That’s based mostly on economic data that is emerging now but comes from before Boris Johnson’s election victory. So even more than usual, this data is historical, is telling us what happened not what is going to happen. Sometimes such data is a reasonable indicator of the direction of travel. Just now, it is not.
Typically, the City is roughly in agreement with the Bank about the state of play, if not about what the remedies should be. Presently, the two are looking at the world very differently. The Bank seems to think that the chances of a recession are rising — it frets about house prices, about GDP figures, about Brexit and it sees falling inflation as good reason to slash borrowing costs.
The City thinks we’re on a roll, that good times are just around the corner, that deals are there to be done and money is to be made. Beyond the financial district, cash should pour into struggling regions; even dodgy airlines shall be bailed out. If the Bank of England spoke human (I didn’t say it was perfect) it might argue that there’s no risk to cutting rates, since if it turns out to be wrong it can rapidly put them up.
Lower interest rates raise the value of stuff people already own — such as houses or shares — so why not give them another nudge, even if they are already going the right way? Because, say City economists, it sends a bad signal about where we are — it suggests a crisis when none exists.
Moreover, a bad call now reduces faith in the Bank itself. The next move in interest rates should be up, not down. The Bank needs to get this one right.