Comments: Shadow MPC votes to cut - and some members demand drastic action

In reality though, a cut of 50bps seems unlikely given Merv's comments on inflation concerns the other day. In fact I think a 50bps cut would raise considerable alarm and do more harm than good, and I'd be amazed if the MPC didn't see it that way. Especially given the panic set off by the emergency action over Northern Rock.

Posted by Minh at December 2, 2007 01:37 AM

This just goes to show that no-one on the shadow MPC has the calibre required to sit on the actual MPC. 75bps?!

Posted by Sell Everything at December 2, 2007 08:52 AM

Agree with Sell Everything, this lot are ready for the looney bin.

Posted by Dan at December 2, 2007 10:55 AM

That's just bizarre. The fact that one member votes for a big cut means none of them have the calibre to sit on the actual MPC? Illogical, Captain.

Posted by David Smith at December 2, 2007 10:57 AM

Well they're just looking at what the US are doing aren't they? And what good is it doing them?

One 0.8% drop in the opinion of house prices from one institution does not warrant panic stations.

We already have an issue with inflation due to the current cost of oil, if they cut the rates, all we will do is feed the inflation monster thats on the horizon.

Petrol £1.02 a litre, I remember not so long ago the country being outraged at 88p a litre.

To a degree it's time business in this country stopped taking a hit on proffits and pass the costs on to the consumer, lets see the how ONS deal with some real inflation statistics.

Why is it that when rates need tightening for good reason, there is always so much caution, but the second there is a smidgen of hint that things are not well, you get people shouting CUT CUT CUT (and one certifiable, calling for -0.75%)

I personally think cutting won't make the least bit of difference, doesn't mean the mortgage rates will come down, there are many many many banks out there worried about who's got the dodgy US bonds, to cut rates now.

Posted by Dan at December 2, 2007 11:13 AM

Tim Congdon: “The main reservation here is that a ½% cut in base rates might trigger a 5% or so fall in sterling. That is why it would be better for the Bank of England to restore the normal working of the inter-bank market by supportive money market operations.”

Trevor Williams: “Moreover, there ought to be some action taken to try and get LIBOR closer to where the base rate implies, by injecting liquidity into the interbank market. With the development of credit markets has come new risks and so new monetary tools and approach are required from central banks to tackle what remains a brutal liquidity squeeze for those have to access interbank markets. The ECB has pointed the way, with repo market activity and acceptance of a wider range of collateral for open market operations. In order to more cleanly focus on inflation and growth, the Bank of England may have to be more creative.”

These two seem to have the right idea. The problems in the financial markets are problems for the BoE to fix, not the MPC. You’re right, SE, in that the MPC members are not qualified to deal with financial market problems. They should leave the BoE to deal with the markets, sit there and just not do something.

If the financial markets are broken, a rate cut now won’t fit them. If there are going to be mass redundancies in the financial sector a rate cut won’t help. If all that happens is that this ‘effective’ rate rise stays in place another two months, the MPC can do something dramatic in Feb. - after we have the retail, employment, wage rise and bonus data from the year-end.

I thought the last UK rate rise was a big mistake but I'm all for staying put until we know a cut will really do some good.

Posted by sandid at December 2, 2007 11:34 AM

Calm down. Whether or not you agree with Patrick Minford, there's no need to insult him - he has more knowledge of economics, particularly monetary economics, in his little finger than you'll ever have. I should also add that all the shadow MPC's votes came before the Nationwide released its November house price index.

Posted by David Smith at December 2, 2007 11:39 AM

Not you, Sandid

Posted by David Smith at December 2, 2007 11:55 AM

Bottom line I think here is the damage is already done, the dodgy mortgage bonds are already in circulation, a cut of 0.75% won't change that. The banks know it too, which is why I think a cut will make no difference to them as they will have the guard up, by way of stricter lending criteria NOW and for the forseable future, they aren't going to pass on the benefit of cheaper cash to the consumer, I just can't see it happening.

It's not going to be brushed under the rug, and nobody needs need a little fingers worth of Economic Monetary experience to see that.

Posted by Dan at December 2, 2007 12:08 PM

"Whether or not you agree with Patrick Minford, there's no need to insult him - he has more knowledge of economics, particularly monetary economics, in his little finger than you'll ever have."

I don't think I 'insulted' Patrick Minford. But, David, if you're dishing out diktat, maybe you should follow it too? To insinuate we are ignorant IS an insult.

I'm becoming increasingly puzzled about why you run this website? Is it to promote a healthy discussion about current economic matters, or is it just a forum for people who agree with your opinion?

Posted by Sell Everything at December 2, 2007 02:33 PM

We've eonly got money supply increasing at 13%. What we need is 20 or even 30%. That should make everything better.

Cut now and cut hard.

Posted by Ian at December 2, 2007 03:28 PM

In my book, saying people don't have the calibre to sit on the MPC, or that they are "for the looney bin", or "certifiable" count as insults. Energy and food pose upside risks to inflation in the short term, as everbody knows. The question is whether this is outweighed over time by the slowdown, the scenario the Bank set out in its November forecast.

As for the money supply, Tim Congdon wouldn't be urging rate cuts if he didn't expect a sharp slowdown in broad money growth, as he says.

Posted by David Smith at December 2, 2007 03:51 PM

Please remember that Patrick Minford is a long-time rate-cutter, and has been opposed to most of (if not all) the rises this phase. What is new is that the uber-monetarists have switched dramatically, from supporting further rises to cutting. If you read Patrick Minford's previous comments in the SMPC minutes (and if David could link them it might be easier), you would see he has been consistent.

Posted by paulbiv at December 3, 2007 01:21 PM

Yes, consistently wrong.

Posted by Sell Everything at December 3, 2007 01:44 PM

Hmmm MPC target inflation, yet we have huge energy and food inflation occurring, as well as shelter over the years. So what is being asked

oh cut rates Mr King (don't need to ask Blanchflower as I'm sure he's creaming at the thought he'll get his way at last!)

Pathetic. I hope the less well off riot, when they realise their wages are not going up, and they can no longer afford to eat or get to work!

Posted by Kev M at December 3, 2007 07:29 PM

Ah, class war and monetary policy. I don't see an outbreak of rioting on the streets if the Bank of England cuts interest rates.

Anyway, Patrick Minford has expanded on his views in the Telegraph:

In terms of linking the previous shadow MPC minutes, a simple search should bring them all up on the site.

Posted by David Smith at December 4, 2007 12:46 PM

HI David

Maybe no rioting on the street, but I expect the message boards will be throwing verbal Molotov cocktails, at the MPC.

Posted by kingofnowhere at December 4, 2007 09:20 PM