Dear Mervyn – the real letter

If the Bank of England fails to keep to within 1% of the Government’s 2% inflation target, the Governor is forced to write a letter to the Chancellor every three months with an explanation. Since 2007 there have been 14 of these supposed apologies, the last nine in consecutive quarters. The Governor has been writing them so long, his notepaper has changed along the way, as has the Chancellors.

In response Messrs. Brown (felt pen!), Darling and Osborne have usually said something like: “I’m sure you’ve done your best, my dear chap, and I’m reassured by your promise that inflation is just about to fall. Keep up the good work.” The latest exchange has just been published. But we’ve come across another letter from the Chancellor to Mervyn King that doesn’t appear to be on the Treasury or Bank of England website. (Click to enlarge it)

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Bank of England rolls the printing presses again

With no great surprise, the Bank of England’s MPC has announced another bout of £50 billion of Quantitative Easing, bringing the total to £325 billion. This is a staggering amount of money, the equivalent of £12,500 for every household in the land.

Where is the evidence that QE is having any positive effect at all, other than helping to prop up our ailing, much-loved banks? Large companies have more than enough cash, thank you very much, and are simply sitting on it. The cash certainly isn’t providing small and medium-sized businesses with the investment funds they need.

Another blow to pensions

By pushing interest rates lower, QE is proving a killer blow to the pension hopes of millions of people and will force annuity rates down further. 20 years ago a pension pot of £100,000 would have bought an annuity providing income of £15,640 a year for life. Now it would produce only £5,800 and that will drop after today’s news. With record numbers retiring, QE will have an appalling impact. Does the Bank care nothing for pensioners? Mervyn King, of course, is rather better insulated than most, with a pension pot of £5.36 million.

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Mervyn King misleads on household debt

In October, Bank of England Governor Mervyn King warned that we could be suffering our “worst financial crisis ever”, more serious even than the Depression of the 1930s. Two months later, just as it is confirmed that the UK has dipped back into recession, he’s more cheerful, telling us not to despair: “There is no reason to despair… All crises come to an end”.

One thing in particular struck us about the speech he gave yesterday evening. He said: “The increase in households’ borrowing came to an abrupt halt in the 2008/9 recession.”

While that may have been true at the time, it gives the very misleading impression that UK households have stopped borrowing. This could not be further from the truth. A look at the Bank of England’s own figures shows that British households are as indebted as ever and that the only reason headline totals have fallen is because the banks have written off so much bad debt.

Take total consumer debt for instance. This stood at at £1,461 billion in November 2008 and £1,452 billion in November 2011. It seems to have declined slightly and yet the banks had written off £26.7 billion. So the total excluding bank write-offs has actually risen by £18.4 billion.

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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. … Continue Reading

Why the MPC has failed

Members of the Bank of England regularly give speeches. Often they are technical and dry and go so far over our heads, they are practically in orbit. Less so last week’s speech by Spencer Dale. The Executive Director of Monetary Policy and the Bank’s Chief Economist gave a talk with the zippy title “Prospects for monetary policy: learning the lessons from 2011”.

The section most heavily reported concerned savers. It is only a little over a year since Charlie Bean caused outrage by saying that savers should stop complaining about low returns and instead go out and start spending. More recently, however, the Bank has softened its stance. After Save Our Savers demonstrated outside the MPC’s October meeting, Governor Mervyn King expressed his sympathy for savers. Shortly after our December carol protest, Mr. Dale offered this consolation:

“I have the utmost sympathy for the hardship faced by many pensioners and other households dependent on the flow of income from their savings. They played no role in fuelling the financial crisis, but have been badly hit by the reduction in interest rates that followed. I understand that the burden of interest rate cuts falls most heavily on savers. And I can understand why, to many, it seems unfair that those with high levels of debt and borrowing should now benefit from lower rates.” … Continue Reading

Carols at the bank

A big thank you goes out to everyone who came along to sing songs from our Save Our Savers Christmas Song Book outside the Bank of England on Thursday, 8^th December.

The day started early with an appearance on the BBC breakfast show at 6.50am. We weren’t able to corral many people at that hour to sing the songs, so it was left to Simon and Nette Robinson to do the honours.

Following the BBC interview they stayed at the BBC and appeared on several local radio stations, including Radio Gloucester, as well as Radio 5 live just before the 9 am news.

Videos of our “choir” singing outside the Bank can be found on FT Adviser , Lovemoney and, rather unexpectedly, Arirang, a South Korean news site

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Carols at the Bank

Come and join us on Thursday, December 8th from 11am until around 12.15 at the Bank of England.

Inside the Bank, the Monetary Policy Committee will decide the latest paltry level for bank rate.

Outside, savers, pensioners and others will gather to show the human face of those adversely affected by the Bank’s policies.

We will have a few placards with us but feel free to bring your own. Bring mince pies too, if you wish, and mulled wine or soup in flasks.

Most importantly of all, though, bring your voices. For this is to be a protest through song. We will be amending the words of some of the more secular carols and seasonal songs to reflect our views and opinions of the Bank of England, its anti-saving policies and its newly-knighted Governor.

We aim to follow this very social protest with a very social meeting. We will adjourn afterwards to a nearby Wetherspoon pub, The Green Man, where we can get warm and get to know each other.

Lyrics for savers

We’ve been working on some lyrics ourselves, such as this:

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Dr Sentance passes judgement on the Bank of England

After last week’s shocking inflation figures, savers could be forgiven for being sceptical about Sir Mervyn King’s claims that inflation will soon drop sharply and that deflation is a greater risk than inflation. The direction of inflation was the topic of a talk given last Thursday by Dr. Andrew Sentance, a former member of the Bank of England’s Monetary Policy Committee who often disagreed with the majority opinion. This is a summary of his speech.

The MPC’s remit is rightly to maintain price stability but the MPC has been reluctant to take action to keep inflation to its 2% target. Despite the views of the Bank of England and the MPC, current inflation is not temporary. An increasingly prevalent view is that it is a good thing that the MPC are turning a blind eye to inflation. This is dangerous. Since the early 2000s, CPI inflation has been drifting upwards, albeit with fluctuations while, from 2008-11, it has averaged 3-4%.

The MPC originally did a good job of keeping inflation to target, beginning with the RPIX target of 2.4% (1997-2003) and then the CPI target of 2% (until the end of 2007). Since 2008, … Continue Reading

Demonstration outside Bank of England

Today while the Monetary Policy Committee sat around eating biscuits and deciding to issue a further £75 billion of quantitative easing, we took the opportunity to illustrate the impact that their decisions over the past 3 years have had on the UK’s Savers.

So in front of numerous press photographers and several film crews we hit Bertie the paper-mache piggy bank with a big hammer. He crumbled under the blow.

Savers are being made to pay for the debt crisis. In an interview for Channel four later in the day Mervyn King said “ I have enormous sympathy for savers and pensioners, suffering from the consequences of a crisis they did not create”.  Not that he is prepared to do anything about it.

And as long as UK savers remain quiescent those who manage our economy will always find it more palatable to devalue savings than to make borrowers pay the true price of borrowing too much. That is why savers must continue to protest and make their voices heard.

We would like to say a big thank you to all the savers who turned up and for all the messages of support we received from those that couldn’t make it.

Why is the base rate still stuck at its record low?

The Bank of England’s base rate has been languishing at 0.5% for so long that nobody is asking the most basic question of all: “Why?”

The Monetary Policy Committee decision to cut it to 0.5% in March 2009 was because “the February Inflation Report had implied a substantial risk of undershooting the 2% CPI inflation target in the medium term and a further easing in monetary policy was likely to be needed.” Fear of deflation inspired the cut and the accompanying £75 billion of Quantitative Easing.

31 months later, the situation is rather different. CPI inflation is 4.4%, yet bank rate is still 0.5%. The MPC’s inaction over base rates is odd, given that the MPC’s role is explicitly to set an interest rate that it judges will enable the Government’s inflation target of 2% to be met. Mervyn King’s letters of apology to the Chancellor repeatedly claim that inflation will fall in due course, even though the Bank of England, which has a record of consistently underestimating inflation, is forecasting it to go to 5%.

Is the MPC still targeting inflation?

Some commentators believe the MPC is giving prominence to other economic considerations. The Wall Street Journal recently reported that the Bank of England “is no longer targeting inflation. There’s no other way to interpret Governor Mervyn King’s open letter on why inflation remains above the bank’s 2% target…By his own admission, Mr. King (sic!) has said a country’s inflation rate is entirely down to the central bank’s choice. The Bank of England could have met its inflation remit, but only at the expense of driving down the growth rate.” … Continue Reading