Bank of England Citizens Panel

Bank of England Citizens Panel

The Bank has agents whose job it is to go round the country to find out how businesses feel at the economy. I assume that our event was called a Citizens’ Panel as none of the attendees run a business. The event was essentially a public information event. A senior official from the Bank and a Deputy Agent attended the meeting.

The Bank’s job is to ensure that the value of money is kept stable. The aim is to ensure that interest rates are not a factor within the decision making of businesses. There is a belief that interest rates determine spending within the economy. The Bank’s mandate is to keep inflation stable at 2%. The economy as a whole must be kept safe and secure. The money of households and businesses must be kept safe.

These are all important issues. We obviously do not want to end up like some where like Venezuela or Zimbabwe. We have avoided that fate. I personally don’t think that we would ever have ended up like those countries anyway. I know that there was a brief fear in 2008, that the entire financial system would collapse. I recognise that if people cannot get money out of cash machines, that we really are in trouble. But I personally never really thought that the financial system would collapse. I personally opposed the bank bailout. From what I can see, it was far too generous.

The problem is that the mandate that it has imo, is not broad enough to ensure that it takes care of the economy as a whole. As far as I know, in the 1960os and 1970s, the Banks’s mandate was to also deal with unemployment. At that time, there were also limits on credit. I am not suggesting that we return to those times. However, it seems to me that individuals, businesses and government are over-indebted these days. There are a number of reasons for that.

In the wake of the Crash, monetary policy was the instrument used to try to deal with the situation. Interest rates were slashed to basically zero. Interest rates have been zero basically for the entire decade since the crash.

I don’t see how one can argue that the policy has worked. I think it is high time that interest rates returned to something approaching normality. I would say that 2% is the lowest rate that qualifies as anything approaching normality. We were told in the session that there will be two or three interest rate rises over the next couple of years. I am not holding my breath as interest rate rises have been signalled and then cancelled before.

The Bank of England introduced the policy of quantitative easing after the 2008 Crash. The crash was supposedly caused by banks ceasing to lend to each other, consumers or businesses. The idea of QE is to ensure that there is adequate finance in the economy. Again, I fail to see how it can be argued that I policy has worked. Or it may be better to say that the downsides of that policy outweigh the benefits.

QE has led to asset prices rising. Asset in this context includes housing. The official from the Bank stated that the Bank knew that would be the effect of the policy.  She also said that the Bank was aware that rising housing/asset prices has “distributional consequences”. That basically is a technical was of saying that those with assets become richer. She was aware that younger people are being priced out of central London. But it is not the Bank of England’s job to address these issues.

I find with economics that things ultimately come back to politics. The senior official stated that the mandate is set by politicians. If we want things to be different, we need to take make different political choices. I asked the Bank official what the Banks’s mandate would look like if it was to be changed so that it was responsible for all the issues that are not currently within its mandate.

I always feel at a disadvantage when I talk to economists. They have a weight of information and authority behind them. I don’t have that knowledge or shared language. I feel that the cure of QE and ultra low interest rates could end up being worse than the disease – which was a situation in which banks have stopped lending.

I personally think that the economy is unbalanced. There are many reasons why that is the case. Josh Ryan-Collins in Why cant you afford a home, does explain why banks prefer lending to property rather than to small businesses. He also explains how and why mortgage lending is far more of a systemic threat to the economy than it used to be.

The Bank has fulfilled the mandate that it has been given. The issue is what should the Bank’s mandate be if we wanted it to deal with a number of issues which are not currently within its remit.

I personally am not persuaded by Labour’s argument/policy that we should have a national bank. I also don’t think the bank should have to address unemployment. I have no problem with the bank being a bank. The issue for me is making sure that we have politicians who are well enough informed enough to be able to put together sound economic policy. I don’t think either of the two main parties is able to do that.

 

 

 

 

 

 

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