The Bank of England should recognise that its tightening of credit conditions through two rate rises, FPC advice against car loans and consumer credit, and tough rules on mortgages has greatly reduced money growth. Tight credit has helped slow the UK economy down to almost a standstill. There is nothing wrong with some increase in credit to people in jobs to buy homes and cars, or to businesses needing more stock and equipment because their revenue is growing. The Bank has to work with the commercial banks to assist low inflation growth.
I do not think a 0.25% cut in the low official rate will do much. I would prefer a new round of Funding for Lending, a scheme which makes cheaper money available to UK banks prepared to undertake sensible new lending to the UK economy. This worked well before and would ease pressures in various areas.
The second is to do what the Fed is doing and make clear to markets that the Bank will make cash available by buying Treasury Bills if needed to preserve liquidity and enforce the current low rate structure in money markets. Commercial banks need to know the Central Bank is not about to squeeze them or damage them as the Bank of England did in 2008-9 by leaving markets short of cash.
Prosperity, not austerity, was my slogan for both the 2017 and 2019 elections. When it became clear Mrs May was going to keep Mr Hammond as Chancellor and allowed such a negative approach from the Treasury and her top officials, I joined with others to replace her so I could advance the cause of Prosperity.
The new Prime Minister made clear his economic policy is the promotion of Growth and Opportunity. He has from the start injected a welcome optimism into the country’s view of our future. When his chosen Chancellor fell for Treasury pessimism and tax rises, he asked him to work using shared advisers with No 10. I think the PM was right. The Chancellor was unwilling so had to resign. I think we will be better off now we have a new Chancellor who should understand what the PM is trying achieve.
One of the Chancellor’s jobs is to tell Treasury officials that we want realistic optimism about the UK’s economic prospects, with an expansion minded budget which will boost our growth and improve our outlook. It was not a case of the outgoing Chancellor valiantly defending a Treasury orthodoxy that is right against a PM who wants too much expansion. It was a Chancellor giving in to the excessive pessimism of the Treasury/Bank/OPBR that has fuelled so many bad and wrong forecasts from them since 2015. The new Chancellor needs to say that we have growth in our own hands, and that whatever the outcome of trade talks with the EU the UK can have a good economic future if we take the correct decisions now.
In future blogs I will be looking at the range of measures the government now needs to take to shake off the slow EU style growth rate we have sunk to, and to liberate damaged sectors that have been hit by too many taxes and wrong policies like housing, cars, general manufacturing and retail.
The Bank of England too needs to work with the government on promoting growth. Inflation is below target and looks set to remain weak for the time being, so the Bank should assist the drive for growth.