The Governor was on Radio 4 this week. Interest rates could rise in the "Relatively Near Term" Mark Carney explained. It was time for the Bank to "ease it's foot off the accelerator". Taking away the punch bowl to avoid a drink driving offence, presumably... could the rate rise be as early as November?
"If the economy continues on the track that it has been on, and all indications are that it is, in the relatively near term we can expect that interest rates will increase," he said.
Ironic, on the same day, the ONS revealed the latest estimates of growth in the economy. The U.K. economy grew by 1.6% last year, compared to the 1.8% last estimated. The downward revisions continued into 2017. Growth in the second quarter was revised down to 1.5% from 1.7% earlier. The economy appears to be slowing, the Bank is threatening to hike rates. Does that make sense? Perhaps.
The Governor is seeking to return rates to the "Status Quo Ante Referendum". A 25 basis points rise would reverse the mistake of August last year. For the moment, further rises will be small and gradual, despite the concerns about bank lending and household borrowing.
Here too, there was some good news for monetary policy. The household savings ratio bounced back in the second quarter. The ONS had previously estimated this had fallen to a record low of 1.7%. That always looked like an errant outlier. The fall supported the proposition households were financing consumption by saving less and borrowing more. The savings figure has now been revised up. The Q2 estimate is now over 5%.
Should the Bank relax? "What we are worried about, is a pocket of risk. A risk in consumer debt, credit card debt, debt for cars and debt for personal loans" Carney told BBC Radio 4's Today Programme. That is not the Bank of England's fault. "Banks had not been as disciplined as the should be in their underwriting standards and pricing of the debt." Oh dear.
So much for regulatory control. As for pricing, banks will take their lead from base rate plus. Life on Planet ZIRP can lead to a heady cocktail of mispricing of loans and asset prices after all. It really is time to plan for take off, despite the apparent sluggish growth in truly global Britain.
The Saturday Economist
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