Repaying the Tories, with interest

The next interest rate decision from the Bank of England is due on Thursday August 1 – let’s hope they bring down the cost of borrowing by lowering interest rates. We could all do with the economic help that would provide. And an added bonus is that it would really hack off the Tories.

Let’s face it – they called an election hoping that the latest GDP statistics would show that the economy was growing and that the Bank of England would cut interest rates in the middle of the campaign. The Tories got neither.

Since many members of the Conservative party had spent the last few years blaming the Bank of England for all of their problems there was a great deal of poetic justice in the Bank’s decision not to cut rates during the election campaign.

Those attacks included the ludicrous claim that the spike in inflation was caused by increases in money supply. Strange that the Bank of England had been propping the economy up with loads of free cash for years, but inflation only took off when Ukraine was invaded.

Then there were the Tories who claimed that the Bank should have increased rates sooner and higher to bear down on prices, which would have meant doing so in the middle of the pandemic. Not something anyone was arguing for at the time, as far as I can remember.

Then, of course the Bank of England had to put up, in silence, with the PM claiming that it was he who brought down inflation, not them.

You might be forgiven for thinking that the Bank of England did not cut interest rates during the election campaign just to get its own back. But it is a serious and honourable organisation – it wouldn’t do that.

No, what has stayed their hand is the fact that inflation is not totally under control. True enough the headline rate is now down to the Bank’s target of 2% but in areas like services the number is much higher at 5.7% and wages are still rising strongly.

The Bank of England won’t want to cut interest rates until it knows that the headline inflation figure is not going to bounce back, which it fears could happen later this year.

So, keeping interest rates at their 16 year high of 5.5% would seem to be the likeliest outcome on the 1^st of August. However, the trend seems clear, rates will start to fall soon and should come down considerably over the next year. A nice present for the new administration, not least because it brings down the cost of government borrowing, and also, of course, because it is a boost for economic growth.

And just to be clear, this has nothing, repeat nothing at all to do with the fact that the Tory government tried to shift the blame for its own failings and rocketing energy costs on to the Bank of England, which then cynically waited until the Conservative’s lost power before bringing us all a little sunshine.

Perish the thought.