Live by the sword

[Suff]

die by a thousand cuts.

The BOE chose to get behind the sword of Armageddon, should we, the plebs, dare to trigger Brexit.

So good were they at this, that people, companies and even whole countries, chose to believe them. When we did vote for Brexit the £ fell like a stone. Cameron decamped for the hills and May took over. Osborne was discarded and the whole thing took on a whole new flavour. Great for the politicians, but institutions like the BOE can't just come out the next morning and say "Hey guys we were wrong so we're not going to do anything". Nope, they were invested in the sword of Armageddon and, like it or not, they had to follow through.

Which they did, rather rapidly with a totally unnecessary interest rate cut which did three things.

Tanked the £ again
Drove inflation up
Started a mini boom in our economy.

For, let's face it, there was nothing at all wrong with our economy. It was the second strongest in the EU and one of the world leaders. The Last thing in the world it needed was an interest rate cut.

So here is where we come to the fun part. There is the BOE, it's kicked off a mini boom, tanked the £ and driven inflation up, almost single handedly. Their ally in the government is beginning to look like a fox, eyeing up a particularly fat and juicy rabbit frozen in the car headlights. The fun gets even better. The BOE need a "reason" to raise rates again and they need time and distance. Enough time and enough distance from the vote, to make it look like they are reacting to events and not trying to fix their own blunder.

It then becomes more interesting and more convoluted. Because the BOE kicked off their own mini boom, they knew that the longer they took to act, the more likely it would be that the economic growth would start to stall as the boom petered out. Just like throwing flash fuel on a fire, if they did not follow up with other stimulus and if the government did not cut taxes and spend on business, then the boom was going to die. Leaving the Bank with no avenue to back down and raise rates because of "economic" factors. To make things worse for the Bank, businesses were not fooled. They knew that this was a short term temporary thing, so there was no way they were increasing wages in line with a very short term and temporary blip in inflation. Especially when core basics were actually falling in price.

Saved by the bell. Energy prices finally drive inflation to a rate that the Bank can, just about, claim there is a reason to put rates back where they belong. Which they do.

And now the fun and games start. The £ starts to rise and the EU start playing games. The £ falls. OK it has a new floor of €1.12-€1.13 instead of €1.10, but it should have bounced right back up to €1.20 with the interest rate differential. The new year comes. Another BOE MPC meeting and they step out with fighting talk. "we're going to raise rates faster and harder than we had planned because it is no longer acceptable to just let inflation sit over our 2% target.

Great, the £ starts rising again, over €1.14, looking good.
And
Barnier stands up and says that the transition period for the UK leaving the EU is by no means a given.

Thump. The £ now sits right back on the new baseline made by the last interest rate rise.

By now the damage is done. They waited too long, the mini boom has started self sustaining inflation, but is not driving more growth. Employers are resigned to the fact that they are going to have to raise wages.

The BOE? Nowhere to turn. They are going to have to drag the £ up by the scruff of it's neck, one single interest rate rise at a time. Only when the interest rate differential hits 1% between the UK and the EU, will the chancers stop selling the £ and start valuing it correctly.

The BOE, with only one weapon left in the locker, the big gun of interest rates, has no choice but to start firing it. Because this is now political and nothing else but sheer avarice is going to drive the value of the £ back up.

The 64k$ question now is this. Will the BOE rattle markets by raising rates in March, with no additional inflation reports, in the hope that they will have headed off even greater inflation in the May report? Or will they sit there like the rabbit in the headlights, just a little longer and get mowed down by the inertia of their own inaction?

It is an utterly fascinating situation. Totally created by their own intention to drive the people of the UK down a path they wanted.

I find it both mesmerising and highly amusing. It will be a long day in hell before the BOE starts trying to make policy with interest rates again.

[AliasAggers]

I find it both mesmerising and highly amusing.

Well, I don't find it amusing at all.

i think it's about time the Government told the Governor of the B of E to get on with running the Bank
and keep his bloody nose out of the political scene. Either that, or get his position put to a puplic vote.
I certainly wouldn't vote for him. Can't the useless sod be sacked?

[Workingman]

I blame Brexit.

Give us Ref2, that should sort it.

What, Leavers might lose. Bless.

[Suff]

Can't the useless sod be sacked?

He can but it wouldn't make any difference. The entire committee made the decision to invest themselves with the whole project fear and lost credibility when we voted to leave.

WM, we can take a flippant view of this if we want. But reality is this. Both political and institutional organisations, in the UK, took a decision to try and scare the people of the UK to death over the Brexit vote. Talk about Russia intervening? What the hell could they do compared to the massive body of lies told by the establishment, both in the UK and in the EU. The Russians must be really bemused about those claims given what went on.

But this lingering issue with inflation and the value of the £ is a direct result of that project fear.

I'm just poking some fun at the serious pain the BOE caused themselves by trying to kid themselves that their predictions were actually true, then making the even larger mistake of acting on their predictions instead of the data from the Economy. Something, by the way, they said they would never do. When Carney came on board he made a point of "Forward Advice" for the markets to get some stability but also of "Reacting to Data". In the end, when the chips were down, the BOE acted on their predictions without waiting for data. Then, when the data did come in, they ignored it.

This is, essentially, a short term thing. It will sort itself out post actual Brexit. But in the interim the BOE can't talk itself out of a paper bag. They are going to have to Act and Act and Act again in order to force the markets where they want them.

If ever there was a case of "Hoist by their own Petard", we're looking at it...

Rather than get mad about it, I've decided to be amused.

[cromwell]

I blame Brexit.

Give us Ref2, that should sort it.

Well, the first one was in 1975, the second was in 2016 so we are looking at 2047 for the next referendum!

[Workingman]

Suff, it is not flippant. I do blame Brexit. I do blame Cameron for the unnecessary referendum. I do blame the Tories and May. I do blame the government's handling of Brexit and I also blame the BoE, but only lightly. You also even hint that Brexit is to blame when you say:

"When we did vote for Brexit the £ fell like a stone." and "For, let's face it, there was nothing at all wrong with our economy. It was the second strongest in the EU and one of the world leaders. The Last thing in the world it needed was an interest rate cut."

So Brexit did cause the fall and hurt the second strongest economy in the EU in the process. It was not all down to the BoE, not even most of it.

The £ started to drop through the floor on the publication of the exit polls and before the official result was announced. The BoE was shut for business at the time - out of hours. The £ eventually hit a 31 year low and something had to be done.

Did the BoE act correctly? According to you, No; according to others, Yes. I don't know. What I do know is that we are up the creek and the paddle is missing along with the rudder. That's not being flippant, that is being a realist.

[Suff]

Yeah, sorry for sniping, I'm in a lot of pain right now.

I do not blame Brexit as much for the drop in the value of the £ as I blame the people and institutions who said it would be a disaster. Laying the seeds of the crash in the value of the £ based on an assessment of economic collapse.

Very little could have been further from the truth.

Yes I do also blame the BOE for boxing themselves into this situation. They had a choice and decided to stick with Project Fear. Now they are reaping the sorrow.

Still I'm not bitter, I'm amused...

[Workingman]

Suff, I hope the pain can be reduced, somehow. Because of complications I can now only use codeine or co-codamol, but I am lucky, I have quite a high pain threshold. A mix of painkillers, hot and cold compresses, self-massage and infraed lamps cure most things for me.

So....

I do not blame Brexit as much for the drop in the value of the £ as I blame the people and institutions who said it would be a disaster. Laying the seeds of the crash in the value of the £ based on an assessment of economic collapse.

How many times have we been told that experts are not to be trusted and that they cannot predict next month's figures never mind years into the future. Yet suddenly their predictions were of value and were the cause of the crash.

Very little could have been further from the truth.

Well we will not know the truth till we leave, and we have not left yet, but the signs are not exactly brilliant.

If Brexit is a disaster, and it could be, it will not be amusing for millions in the UK, young, middle-aged and old, who have never had the chance to build reserves to protect themselves, even in the short term. They would be justified in being bitter... and there will be more than a few.

[Suff]

Very true, the people have been told to ignore the "experts". But in this case it was institutions, responsible for the very data that companies use to predict future trends, who went on a major Project Fear bender.

Let us face facts. Brexit was always going to be a big hit on the UK in the first 3-5 years. This is because it will take at least that long to get the UK untangled from its ties and relationships with the EU.

If, however, the UK is still in a mess after a decade, then it will be firmly the responsibility of the government in power at the time. The key difference, post Brexit, is that they will have nobody to blame but themselves and will be seen as fully responsible by the people, come election time.

Is it any wonder more than 50% of these "representatives" wanted us to stay in the EU??

[Workingman]

If, however, the UK is still in a mess after a decade, then it will be firmly the responsibility of the government in power at the time.

Not at all. It will still be seen as the responsibility of Brexit voters. They will no doubt want to deflect the blame, as they do today, but the responsibility will be theirs and theirs alone. We Remoaners, remainiacs and rembiciles will have long memories, and so will more than a few disgruntled Breiteers.

The key difference, post Brexit, is that they will have nobody to blame but themselves and will be seen as fully responsible by the people, come election time.

And what an election that will be... "don't vote for us, we do not want to pick up the pieces".