Bank of England decision on rates reveals its ‘failure’

The decision by the Bank of England’s Monetary Policy Committee (MPC) on Thursday to maintain interest rates at 5.25% reveals the committee’s “failure” and “inability to fulfil its mandate.”

 
This is the bleak assessment from Nigel Green, CEO and Founder of deVere Group, one of the world’s largest independent financial advisory and asset management organisations.

His comments come as policymakers held interest rates at 5.25%.

“The Bank of England is continuing to fail households and businesses across the UK by maintaining rates.

“The primary role of the MPC is to control inflation. It failed with their inaction at the start, passively standing by for too long when prices were already starting to surge.

“It’s continuing to fail now with adherence to a restrictive monetary policy which is exacerbating the challenges faced by firms and households.

“Increased borrowing costs are placing a huge burden on businesses, hindering investment and growth.

“The decision to maintain interest rates at 5.25% prolongs the agony, raising serious questions about the committee’s understanding of the economic landscape.

“As the impact of this policy lingers, the prospect of a recession looms large, threatening millions with increased financial hardship and misery.”

There is potential for prolonged economic downturn. The repercussions of monetary policy have a lag effect, meaning that the full extent of the damage may not be immediately apparent.

The deVere CEO says: “Central bank monetary policy is notoriously slow to take effect.

“The changes in interest rates can take 2 years to feed themselves into the broader economy. 
“Given the many interest rate hikes over this period, it would be astonishing if we did not see a marked slowdown in employment growth and consumer demand over the coming months. In short, things could get even worse.”

The crux of the matter lies in the MPC’s “continued failure to act decisively and promptly.” The impact of monetary policy takes time to materialise, and the delay in recognising the need for intervention has left the UK vulnerable to greater economic woes.

The Committee had an opportunity to instigate positive change by voting to lower the Bank Rate to 5%, providing “immediate relief to struggling businesses and households.”

Unfortunately, this opportunity was missed, and the consequences may be felt for an extended period.

Nigel Green concludes: “The Bank of England’s decision to maintain interest rates at 5.25% underscores the ongoing failure of its Monetary Policy Committee.

“It’s imperative that the MPC reconsiders its stance at its next opportunity and takes swift action to lower interest rates.

“Only through proactive and responsive measures can the Bank of England hope to steer the UK towards economic recovery and alleviate the current misery facing households and businesses alike.”