Bank of England

A possible idea?

? The Telegraph

There are calls in the UK for the Bank of England to drop interest rates to 0%…will there be calls in New Zealand for the same type of action in a bid to kick start?the?economy…or is this just madness?

Economists and business leaders have urged the Bank of England to slash interest rates to nearly 0 per cent in a bid to kick-start Britain?s stalled recovery.

The British Chambers of Commerce and the Ernst & Young Item Club, the only forecasters to use the Treasury?s economic model, have both urged the Bank of England to take bold action to boost growth at Wednesday?s meeting of the Monetary Policy Committee [MPC].

The economy has shrunk for three successive quarters according to figures published by the Office for National Statistics last week, which said the UK?s GDP fell by?0.7 per cent?between April and June.

Andrew Goodwin, senior economic advisor to Item, said: ?We do think there should be a rate cut. The Bank could go down to the rates in the US ? 0.0 to 0.25 per cent. It is not the only answer, but it would help.?

Since March 2009 the Bank base rate has remained at 0.5 per cent – the lowest level in the Bank?s 300 year history.

A further rate cut could reduce mortgage repayments for millions of homeowners and would ease borrowing costs for businesses.

But what about savers?

But another rate reduction would dismay savers, who have seen the annual interest payments on their deposits dwindle to as little as 0.1 per cent during the ongoing financial crisis.

Meanwhile, some economists have suggested that such an ?absolute zero? interest rate could freeze up money markets.

David Kern, chief economist at the British Chambers of Commerce, said: ?A rate cut now could really help businesses. I do not accept the argument that it would cause problems in the money markets.

?I would like to see that more than another round of Quantitative Easing. Higher QE will only have marginal effects on the real economy, and is not risk-free, as it will limit the fall in inflation.

“Lower inflation is critical to underpinning real incomes and sustaining demand in the UK economy.?

Perhaps they should send some to jail


There is a growing banking scandal unfolding in the UK. Instead of bailing them out all the time shouldn’t we explore putting a few of them in the slammer:

Barclays chief executive Bob Diamond suddenly quit on Tuesday over an interest rate-rigging scandal that threatens to drag in a dozen more major lenders, but suggested the Bank of England had encouraged his bank to manipulate the figures.

“The external pressure placed on Barclays has reached a level that risks damaging the franchise – I cannot let that happen,” said Diamond, 60. The terms of his severance were not announced, though Sky News said the bank would ask Diamond to forfeit almost ?20 million ($39 million) in bonuses.

Politicians and newspapers have zeroed in on the scandal – which revealed macho emails of bankers congratulating each other with offers of champagne for helping to fiddle figures – as an example of a rampant culture of wrongdoing in an industry that stayed afloat with huge taxpayer bailouts.

Barclays released an internal 2008 memo from Diamond, then head of its investment bank, suggesting that the deputy governor of the Bank of England, Paul Tucker, had given Barclays implicit encouragement to massage the interest figures lower during the peak of the financial crisis in order to present a better picture of the bank’s financial position.

According to the memo, Tucker told Diamond he had received calls from senior government officials. “It did not always need to be the case that we appeared as high as we have recently,” Diamond said he had been told.

The Bank of England declined to comment, but analyst Ian Gordon at Investec said: “Based on first inspection it does seem to suggest that Barclays have received a message from the Bank of England which provided, to put it mildly, significant encouragement.

“So they’re maybe trying to share the blame but with justification. It raises a whole bunch of questions, and they’re very serious and they’re for the Bank of England to answer.”