‘Bold rewiring' of economy needed as Tories seek to regain trust, Stride says
'And why has he singularly failed to examine the role played by the Bank of England in causing the LDI crisis that sent gilt rates spiralling? Why has he never asked the pertinent questions of the Governor, despite the Bank since admitting that two-thirds of the gilt spike was down to them?
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Telegraph
2 hours ago
- Telegraph
Reform launches attack on the Bank of England
Reform has launched a blistering attack on the Bank of England for wasting tens of billions of taxpayers' cash on its money-printing programme. Richard Tice, the party's deputy leader, accused Threadneedle Street of prioritising bank profits over the interests of working people as he vowed to order it to stop paying billions of pounds in interest to commercial lenders. In a letter to Andrew Bailey, the Governor of the Bank of England, Mr Tice says the Bank has engaged in 'systemic misuse of taxpayers' money' by paying interest on cash parked at the Bank as well as selling its existing stockpile of government bonds at substantial losses. Reform, which is leading several polls, claims it could save £35bn a year by scrapping interest on central bank reserves, created as part of the Bank's £895bn quantitative easing (QE) programme to boost the economy during the financial crisis and Covid lockdowns. It wants to use this money to help pay for an increase in the tax-free personal allowance to £20,000 and cut corporation tax. Mr Tice said the unwinding of this programme – known as quantitative tightening (QT) – was pushing up borrowing costs and piling pressure on the public finances. 'The Bank of England is unnecessarily wasting tens of billions of pounds of taxpayers' money, whilst enriching City institutions,' the letter says. 'The nation's accounts are already under very severe pressure. QT is also partly responsible for keeping gilt yields higher than they otherwise would be, resulting in even more punitive interest costs, imposing yet more strain on the [public finances].' The remarks put the Bank on a collision course with Reform if the party wins the next election. Mr Bailey has warned that a victory for Reform could lower savings rates or push up borrowing costs for consumers. Commercial banks earn interest on reserves held at the Bank at the base rate. Threadneedle Street made huge profits from QE when interest rates were at record lows of 0.1pc because the returns on the government gilts it bought were far higher than the amount it had to pay in interest on reserves. A total of £123.9bn was generated and sent to the Treasury. However, this rapidly reversed when borrowing costs started to rise, with £85.9bn transferred back from the Treasury to the Bank since the end of 2022. NatWest, Barclays, Lloyds and Santander received more than £9bn in interest on Bank of England reserves in 2023 – a 135pc increase on the previous year, according to the Treasury committee of MPs. The Office for Budget Responsibility (OBR), the Government's tax and spending watchdog, expects the cumulative lifetime loss to the taxpayer to total £133.7bn – which is bigger than the annual education budget and more than twice what the UK spends on defence. Reform is not alone in its criticism of QT. Former Bank deputy governors including Sir Paul Tucker and Sir Charlie Bean have also suggested changes to how reserves are remunerated. Rachel Reeves, the Chancellor, also wrote to Mr Bailey last month to stress that the process of reducing the Bank's stockpile of bonds must provide 'value for money'. However, the Governor has repeatedly warned that ending interest payments on reserves could undermine the Bank's ability to influence the cost of borrowing, while another former policymaker, Gertjan Vlieghe, said such a move would be a 'disaster' akin to a debt default. Mr Tice used the letter to describe the comparison as 'complete nonsense'. He said: 'This money was created out of thin air by the Treasury and Bank of England to lubricate the wheels of the economy at two times of extreme national stress over the last 18 years. 'It did not belong to those City institutions in the first place. It is no coincidence that commercial bank profits have soared as interest rates rose as the Bank of England paid out tens of billions of this voluntary interest. Those institutions cannot believe their luck.' Catherine Mann, a member of the Bank's Monetary Policy Committee (MPC) that sets interest rates, has also warned that policymakers must pay closer attention to the impact of QT on financial markets and the wider economy now that it is cutting interest rates. She estimated that QT could raise borrowing costs by almost a quarter of a percentage point. Mr Bailey has repeatedly spoken out against changing the way commercial lenders are compensated for parking their cash at the Bank, warning that it could undermine financial and monetary stability if lenders no longer wished to hold extra buffers at the Bank. In a letter to the Treasury select committee in April, Mr Bailey said: 'Remuneration of reserves is a key component of the Bank's approach to ensuring rate control. Any loss of rate control would undermine the MPC's ability to affect the real economy with its interest rate decisions and could cause significant harm to credibility of monetary policy.' However, Mr Tice denied that Reform would be interfering with the Bank's independence, comparing the Bank's choices to 'extraordinary strategic decisions which amount not to monetary policy but to fiscal policy, costing the taxpayer tens of billions of pounds of losses'. He added: 'The role of elected governments and politicians is to protect taxpayer's money and the broader interests of the electorate. It would be negligent of us to ignore this very significant issue and leave it in the hands of unelected people. Our job is to challenge, scrutinise and question'. A Bank of England spokesman said: 'The Governor set out the Bank's views on the matter in a letter to the Treasury Select Committee.'
Daily Mail
10 hours ago
- Daily Mail
Millions of homeowners could be paying far too much for their mortgages
Homeowners may be paying too much on their mortgages because of unreliable data from the UK's main statistics body. Bank of England Governor Andrew Bailey told MPs that the Bank's lack of trust in number crunchers at the Office for National Statistics (ONS) 'does have a bearing' on its decisions on interest rates, which in turn affect mortgage payments. The Governor did not spell out the implications – but if doubts about the data are delaying interest rate cuts, then millions of borrowers may be paying the price. Problems have been plaguing the ONS figures on jobs and wages for the past couple of years. These include difficulty finding enough people to respond to surveys since the pandemic. Smaller sample sizes increase the risk of inaccurate data. The state of the labour market is a key element in the Bank's deliberations on interest rates. Its aim is to keep inflation near a target rate of 2 per cent. A strong jobs market and robust growth in wages are normally seen as a factor that would push up inflation and therefore make it less likely the Bank will cut interest rates – and vice versa. But given the uncertainty around the ONS's key Labour Force Survey (LFS), which tracks this information, members of the Bank's rate-setting Monetary Policy Committee are instead having to make their own judgments by piecing together data from elsewhere. At a Treasury Select Committee hearing last week, Bailey said efforts by the ONS to improve the reliability of its figures are 'a work in progress' and there was a 'very severe health warning' on the data. Sarah Breeden, the Bank's deputy governor, said other data sources, such as figures from HM Revenue and Customs (HMRC) were being used to help the Bank make its decisions. However, the HMRC data does not cover self-employed people, a key part of the labour market, which is included in the LFS. Bailey has previously described unreliable labour market figures as a 'substantial problem' for the Bank. His latest comments go further, by saying that the issue is directly affecting decisions on interest rates. Poor data could affect Britain's 8.4 million mortgage holders, particularly the 1.1 million whose borrowing rates vary as the Bank changes interest rates. The last rate cut in May – even though it was just a quarter of a percentage point – lopped hundreds of pounds off the average annual mortgage bill. A typical tracker mortgage saw its annual payments reduced by nearly £350, while the average borrower with a standard variable rate saved £166, according to trade body UK Finance. The ONS suffered a fresh embarrassment on Thursday when it admitted that the UK's inflation reading in April of 3.5 per cent had been overstated by 0.1 of a percentage point because of an error in how it calculated data related to vehicle tax. The statistics body has been shaken by changes at the top after its boss Sir Ian Diamond stepped down last month for health reasons. Some experts have said the problems mean the Bank of England is effectively 'flying blind'.
Reuters
19 hours ago
- Reuters
Bank of England is 'not sanguine' about inflation hump, Greene says
DUBROVNIK, Croatia, June 7 (Reuters) - The Bank of England still expects the ongoing rise in UK inflation to fade but is "not sanguine" about it after price growth proved more persistent than anticipated only a few years ago, BoE monetary policymaker Megan Greene said on Saturday. Britain suffered a bigger than expected inflation surge in April - even after taking out an error in the data - prompting investors to bet on the BoE slowing its already gradual pace of interest rate cuts. "Our view is that we can look through it, but of course there's a pretty big risk," Greene told a conference in Croatia. "The last time we had a lot of second round effects. We're hoping that we won't have second round effects this time around, but we're not sanguine about it." She argued the recent cost-of-living crisis, which saw inflation peak at 11.1% in 2022, might have made "people ... more sensitive to upticks in inflation and so that could feed through the wage-price behavior." Greene, an external member of the BoE's Monetary Policy Committee, voted last month with the majority for a quarter-point cut in rates to 4.25% and has said she was part of the group who might have voted to keep rates on hold if it hadn't been for U.S. tariffs. She reaffirmed on Saturday that private-sector pay growth was "way above what would be consistent with a 2% inflation target". "It's (going) in the right direction, it's just not going as quickly as I would like it to," she added.
