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MPC holds base rate at 0.5% for 35th month in a row
Another month, another MPC decision to keep base rate at 0.5% as it has been since they first brought the rate to that level in March 2009.
This week’s political buzzword that is being bandied about is “fairness”. Yet not a word has any politician from any of the parties spouted about the huge injustice of the Bank of England’s policies.
How can it be fair to confiscate £44 billion annually from savers and pensioners and transfer it to those in debt, to penalise those who have struggled to put something by in order to support those who ran up debts and caused this financial crisis, to reward debt and penalise savings? Of course it is not fair. But it is politically convenient to inflate away debt and so they stay shamefully quiet.
Low interest rates are hurting the economy
The most annoying thing is that the policy is now doing the opposite of what is intended. Negligible base rates have not produced growth as was hoped. What was an emergency measure has been extended to last almost three years and is now actually harming the economy as commentators such as Anthony Hilton and Andrew Lilico have recently recognised.
Economic growth requires investment. But real investment requires savings. Without them, there can be no sustainable growth.
Yet instead of encouraging saver, the group that could provide the investment to help get us out of this mess, the Bank of England is hammering them instead. It doesn’t seem able to recognise that its actions are hurting the economy, crippling pension funds, savaging annuity rates and scaring people into curbing consumer spending.
The mad topsy-turvy world of Alice in Wonderland
The economy is now so distorted by artificially low interest rates that investors in index-linked government bonds this week had to pay for the privilege of lending the government money. We have moved into the mad, topsy-turvy world of Alice in Wonderland.
The Bank of England must admit that it has got it wrong and give a firm indication soon that interest rates will begin to be normalised. This would encourage businesses to invest, restore profitability to financial institutions, relieve the pressure on pension funds and persuade savers that they are free to spend again.
It is no use the Governor and Deputy Governor of the Bank of England expressing sympathy for the plight of savers. Savers don’t want sympathy. They want action. Action to stop this massive transfer of wealth. Action to stop the long-term devaluation of the pound.