Get ready for negative interest-rates in the UK

There is a saying that a week is a long time in politics well it appears that this is also true in monetary policy especially for Martin Weale of the Bank of England. We do not need the TARDIS of Dr.Who to skip back to the 18th of July when he told us this.

This uncertainty points to the argument that we should wait for firmer evidence before making any policy change at least in the absence of any strong arguments for an immediate change.

And indeed this.

For there to be a case for easing policy I will need to expect weakness in output to be large enough to compensate for any overshoot in inflation on the assumption that policy is unchanged in the near term

This led to the view he would not be voting for any Bank Rate cuts a view which was reinforced by those who were reviewing events on the day.

MartinWeale‘s doubts over need for interest rate cut boost markets (Guardian)

Hold fire on interest rates says MPC member MartinWeale ( Daily Telegraph)

MartinWeale on the Bank of England’s policy response to Brexit. Steady as she goes… ( Frances Coppola ).

Such a view would be consistent with the fact that he has twice undertaken a series of votes for a Bank Rate rise ( 12 votes in total I believe) and even briefly rejected the mantra of Forward Guidance of “lower interest-rates for longer”. However of course there is something to be learned about the fact that on each of those three occasions he was found later to be retreating with his tail between his legs.


Here is the conclusion of the article on the interview he has given to Chris Giles of the Financial Times.

One of the UK’s top monetary policymakers has indicated he has changed his mind after a series of negative business surveys and now favours an immediate stimulus for the UK economy……..The new stance of Martin Weale, an independent member of the Bank of England’s Monetary Policy Committee.

Well not that independent currently! Top? Only as in spinning like one.But what is the firmer evidence for his change of mind? The emphasis on what is an extraordinary second sentence is mine.

What I said last week is that I would like more information as well as more reflection and I have had more information. Although you can’t say there’s a clear signal, if you spend all the time waiting for a clear signal, it never comes.

Whether the latter applies in his mind to the way he called for interest-rate rises then reversed such calls I do not know but what changed his mind?

They (Markit Purchasing Managers Indices) are the best short-term indicator we have at the moment. I certainly feel they are very material for the decision we’ll be taking next week,” he told the FT, adding that they were “a lot worse than I had thought” and showed “expectations have worsened sharply”

Okay so a reading of 47.7 ( on a scale which for Greece has gone into the low 30s) is much “worse than I had thought”. Odd when you consider that in some respects it is better than what the Bank of England was saying beforehand. Actually it indicates a possible mild recession if this next bit is true.

much of course depends on whether we see a further deterioration in August or if July represents a shock-induced nadir

The answer to which is unknown right now but you see as he panics there is a problem. He doesn’t think it will make much difference anyway!

One of the MPC’s problems is that monetary policy works with a delay, so action in August is unlikely to give the economy a quick boost. “If we’re talking about having an effect by the end of the year, there is very little that the bank can do,” Mr Weale said

Actually if you take the traditional view then a Bank Rate cut takes around 18 months to take effect so it will be in full force around New Year 2017/18 about which the PMI survey told us virtually nothing! Indeed he has to face the reality that the Open Mouth Operations of Bank of England policymakers like him have in fact made things worse.

Mr Weale rejected criticisms that the BoE’s warnings about the EU referendum outcome had created a self-fulfilling prophesy of doom.

Even the Financial Times with its long record of toadying to policymakers must have raised that issue which is revealing in itself.

What about QE?

Martin Weale seems rather keen on it.

Asset purchases are still likely to be effective,

Let us take a look at the ten-year Gilt yield which is 0.79%. So any gain from lower bond yields is pretty much used up. Has nobody told Martin? He does say in the interview that he is not keen on “discussing moves in financial markets.” Even if we go to the thirty-year yield it is only 1.67% which is extraordinarily low for the UK. For newer readers I recall days when the long-term Gilt yield was 15%. So any addition would be like tipping a thimble into the river Thames.

A theme song for Martin Weale

I have been receiving suggestions online but let me open with Kylie.

I’m spinning around
Move out of my way…….

Mistakes that I made givin’ me the strength
To really believe

And as suggested here are Dead or Alive

You spin me right round, baby
Right round like a record, baby
Right round round round

August will be Martin’s last vote at the Bank of England and it seems sadly thematic that after a year of votes for higher interest-rates he will panic and vote for a cut. Students at Kings College London may reasonably wonder what the value of his teachings will be?

Negative interest-rates are just around the corner

You might reasonably think that it is always RBS ( Royal Bank of Scotland) and you would be right! From the BBC today.

Natwest and Royal Bank of Scotland (RBS) have warned businesses they may have to charge them to accept deposits due to low interest rates……The move, if enacted, would make them the first UK banks to introduce negative interest rates, in effect, charging to deposit money.

I have to confess that the next bit made me wonder how many of the businesses concerned were still paying high interest-rates on the products that RBS miss-sold to them?

A spokesperson for Royal Bank of Scotland, which owns Natwest, told the BBC the letter was sent to just under 1.3 million of the combined business and commercial customers of the two banks.


There is much to consider here and let me open with an irony. There were, in my opinion enough votes for a Bank Rate cut next week anyway (6-3 I had it). So Dr.Weale has panicked and perhaps made things even more uncertain unnecessarily. He has also sent the UK Pound £ lower which is not what is required right now. He would have done much better to consider if after all the easing that has happened we need ever more that perhaps that is not the answer?! Also we get the second quarter UK GDP numbers tomorrow so if he had waited he would have seen more of the evidence he claims to want as in knowing where we were before the EU Referendum.

Meanwhile the UK looks set to move even closer to and possibly into the world of negative interest-rates. I fear that rather than making things better they will make them worse as so far no-one has negotiated their way out of them. Also there is any irony in a way in it being driven by a vote on the European Union as it is one of its products the Euro which has turned out to be like a supermassive black hole for negative interest-rates.

Mind you Dr.Weale has kindly provided a critique of his and the Bank of England’s independence

I have had no sense of the MPC and the Treasury trying to drag the economy in different directions


32 thoughts on “Get ready for negative interest-rates in the UK

  1. ‘Students at Kings College London may reasonably wonder what the value of his teachings will be?’ – well, they can learn what is NOT good economics!

  2. Hi Shaun
    Thanks for annoying us in
    an informative way.
    Piss up and brewery spring
    to mind,I wonder if the Weales are about
    to fall off!


  3. Hi Shaun
    I am a total convert to your suggestion that we should be able to vote off members of the MPC, its either that or measure their necks! I used to be angry, now just depressed by the way they consistently make matters worse for the ‘real world’.

    • I’m with you JW.

      QE is a bail out of asset holders (such as myself) at the expense of the poor…I just can’t see how else you can dress it up given the evidence post 2008……….whilst QE will work out for me,what about the next generation? What about introducing some financial and statistical integrity to our way of life to try and generate some real growth without relying on accounting sleights of hand?

      Like you I find the real scandal that these people who are so clearly clueless are able to operate with relative immunity from the job insecurity they subject ordinary people (like myself) too.

  4. Tomorrow, the next growth figures; next week, the final pmi; plus all the stuff the boe will have to hand, the second week in august, including more by their spies. OMO you call it. Public comment by mpc members should be addressed. I am surprised it is not in their code of conduct. What actually is inside trading.

    • Hi am

      I agree that there is a clear issue with this. If we consider the Forward Guidance hokey cokey of Mark Carney and the larger worldwide issue of US Federal Reserve members flying kits about interest-rates there is clearly a problem. It gets worse if we remind ourselves that it was only recently that the ECB was discovered giving a type of “early wire” to hedge fund meetings.

      Insider trading is only a crime for non-members of the establishment it would appear.

  5. Glad I went to UCL then! Why do they think that doing more of the same thing, which hasn’t worked, esp as it heads towards causing all sorts of problems with NIRs, will suddenly start to do something? Why doesn’t some financial journo pose this question?

    • Absolutely.It’s the definition of insanity.

      We have a media that’s sponsored by estate agents……….that’s why imo.

      • It is something I have wondered. I also note from Shaun’s piece that mortgage borrowing is up 4% gross, but (I assume) taking out the remortgaging, it is up 3%, yet Rightmove say the number of borrowers is at its lowest level since Lehman’s. That in itself shows that the one thing ZIRP helped – asset prices have reached their highest level. So, the economy will not even see a rise in sales of pointed shoes.

        • No, I am wrong on that – gross lending is the figure lent, but nett takes into account repayments. So, really, it is just doing that last bit of HP inflation, while some people are taking advantage of low rates to pay some off.

      • You are looking from the wrong perspective.
        Their actions would be insane if their purpose was to attempt to meet their STATED goals.
        As the hidden agenda is to preserve the status quo, their schemes are doing very well.
        That the rest of us suffer, is of no consequence.

    • David they are carrying on with this strategy because there is nothing else they can do but they are only postponing the inevitable the bursting of the biggest bubble in history…the debt bubble.
      It is extend and pretend that the debt tsunami won’t hit but it will.
      This happens to all paper money systems debt balloons the currency devalues till it is worthless.
      Almost all Western economies are basket cases Us almost $20 trillion in debt.,Japan unbelievable yet some lunatics think the Yen is a safe haven?The Deutsche Bank at least €50 trillion of derivatives on its books.
      Systemic risk caused by debt levels has never been greater yet bond yields are near zero or negative…….the alarms are all ringing yet most people are oblivious..everything is all right….till it’s not.

        • ‘Interesting though that the Fed is mulling a rise, which really would crash the UKP/USD rate.’

          Save your pensions industry or destroy your mortgagors………you pays yer money and yer politician takes his pick

      • There is certainly plenty of Micawberism in the CBs’ approach – perhaps it is time for the Stranglers:

        “Don’t you like the way I move when you see me?
        Don’t you like the things that I say?
        Don’t you like the way I seem to enjoy it?
        When you shout things but I don’t care
        Something’s happening and it’s happening right now
        You’re too blind to see it
        Something’s happening and it’s happening right now
        Ain’t got time to wait
        I said something better change
        I said something better change
        I said something better change”

      • most derivatives when “unwound” will cancel out

        approx 8% dont appear to be able to – 4 trillion is still a lot of wonga to pony up


        • ‘most derivatives when “unwound” will cancel out ‘

          in an ideal world you’d be right but all it takes to ruin the reacharound is one counterparty to fold and then all of a sudden you’re netting off against someone who can’t pay.At best,it’ll take a few days to work throuhg the system,at worst it’ll destroy it.

      • ‘Systemic risk caused by debt levels has never been greater yet bond yields are near zero or negative…’

        Absolutely,Private F……..when this one blows it’ll really be a case of watch out below.

  6. ‘They (Markit Purchasing Managers Indices) are the best short-term indicator we have at the moment. I certainly feel they are very material for the decision we’ll be taking next week,” he told the FT, adding that they were “a lot worse than I had thought” and showed “expectations have worsened sharply”’

    The PMI is a joke.They phone up some people with a vested interest in getting some cheap money and ask them a leading question that might get them some more cheap money………..

    Anyone see a problem?

    Forbin save me …….

    • hello Dutch

      better get some popcorn in

      I have a sneaking suspicion that TPTB are going to “punish” the british wtih ZIRP and BIRP . I cannot see why anything needs to change at the BoE ( apart from Bagdad Carneys resignation ) .

      sweat the economy then propose we join the EU / Euro zone to “save” us ……

      now what did ” whinger ” Weale say ?

      ” I have had nonsense from the MPC and the Treasury….”

      there , thats better 😉


  7. Shaun, the 4th of August is a critical day. As you allude it could be statement of intent, reduction of base rate and further QE. But I think post Brexit referenda they can’t make it stick without causing a drop in sterling and potentially a runaway on the currency. The only way I would back your assertion is if Mark C. came out this week and said a slight rise in rates was in prospect…. then I would know for sure there would be a drop o the 4th Aug. 🙂

    • Hi Paul C

      Nothing less than a pledge from Mark Carny to raise interest-rates would do! Actually as Martin Weale is usually wrong I was wondering if something would intervene in the meantime. Bank of Japan on Friday?

      But more seriously perhaps after all his plans to raise Bank Rate voting for a cut at his last meeting would sum him up.

  8. I hope leaving the EU and going it alone, will give us an opportunity to good look at all these institutions, including the MPC, and decide if it has any useful purpose!

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