The cracks at the Bank of England have become fissures

This has been a bad week for the Governor of the Bank of England Mark Carney.  First came the appointment of Professor Silvana Tenreyro to the Monetary Policy Committee which led to even social media to have a brief period of  silence as everyone looked up who she was! Next came a reminder that his Chief Economist Andy Haldane is a modern version of a “loose cannon on the decks” on the edge of going off in almost any direction at any time. Finally last night came a critique from someone Governor Carney went out of his way ( North America) to appoint.

Kristin Forbes

Ms Forbes has given quite a damning account of her time at the Bank of England whilst also confirming several themes of this website.

In July 2014, when I started on the Bank of England’s Monetary Policy Committee, it was widely expected (including by me) that we would begin increasing interest rates soon. It has been almost three years – and growth has averaged a healthy and above trend 2.3% (year-on-year) over this period. Yet interest rates are now lower – instead of higher – than when I started my term.

Fair play to her for the honesty but of course regular readers will be aware that I forecast this outcome back then. The establishment continue only to talk to themselves which is why we get the phrase “widely expected” when they are wrong as they live in an echo chamber. It is an irony that they try to wear the badge of diversity when in fact it is diversity of ideas that they most need and of course they shun.

Ms Forbes continues to land punches on the Bank of England consensus as another of the themes here the woeful forecasting record gets a mention.

A key justification for the large amount of stimulus that many people (albeit not me) supported in August was a forecast for a sharp contraction in growth to near recession levels and sharp increase in unemployment that would leave a meaningful increase in the number of people without a job. That forecast has not materialized.

As I wrote at the time this was perfectly predictable if you looked at the impact of falls in the value of the UK Pound £ which as a reminder is currently equivalent to a 2.75% cut in Bank Rate. If I was to make a one sentence critique of bringing members of the “international economic elite” to the Bank of England it would be that they invariable fail to understand the impact of changes in the UK Pound £. I write that in sad fashion in this instance because it looked for a time that Kristin Forbes did understand.

After the uppercut comes the left cross.

And as the UK economy has held up well since the Brexit vote, why has there been no consensus to tighten
monetary policy – or at least slightly reduce the substantial amount of stimulus provided in August – since

So she thinks that the Bank of England is full of “Carney’s Cronies” as I have labeled them too?

a majority on the MPC does not support reversing a small portion of last August’s stimulus.

As an aside it is also revealing that even she does not seem to in the words of Blockbuster by Sweet “have a clue what to do” about all the QE. Back in September 2013 I wrote an article in City-AM with a suggestion on this front. Returning to the economic theme she points out that the world has changed at least according to the Bank of England so why has policy not changed?

Instead, over the three full quarters since the referendum, GDP has increased by over three times more (by almost 1 percentage point more) than forecast in the August Inflation Report, and unemployment is 0.5 percentage points lower. Put slightly differently, instead of increasing, unemployment has fallen so much that it is now at its lowest level in over 40 years. At the same time, inflation spiked to 2.9% in May. It is expected to continue increasing over the next few months and remain above target for
over three years.

It has been argued by some by the previous Governor Baron King of Lothbury intimidated some MPC members so as you read this next quote please be aware that his term ended in the summer of 2013 as Mark Carney arrived.

This pattern of different views and dissent by all types of committee members, however, seems to have
changed around 2013 – a period when there were a number of changes at the Bank and to the MPC’s remit,
making it hard to pinpoint the cause……… Not a single dissent since 2013 has come from an internal member.

Finally it would appear that someone at the Bank of England has caught up with a point I have been making since the EU Referendum vote.

Sterling’s recent depreciation appears to be shifting the trend component of UK inflation upward quickly, potentially generating more persistent inflationary pressures

This is all rather different to what Governor Carney told us at Mansion House.

This stimulus is working. Credit is widely available, the cost of borrowing is near record lows, the economy has outperformed expectations, and unemployment has reached a 40 year low.

Loose cannon on the decks

For those unaware this saying came from the Royal Navy where in the days of sailing ships a loose cannon was extremely dangerous to say the least. A modern version of this has been the Chief Economist of the Bank of England Andy Haldane which we can see by a simple game of then and now. First just over 11 months ago.

In my personal view, this means a material easing of monetary policy is likely to be needed,…….Put differently, I would rather run the risk of taking a sledgehammer to crack a nut than taking a miniature rock hammer to tunnel my way out of prison…….Given the scale of insurance required, a package of mutually-complementary monetary policy easing measures is likely to be necessary.

And this week.

I considered the case for a rate rise at the MPC’s June meeting.

As ever there is no real confession here about being wrong. After all if Andy had built a plane and it crashed on take-off who would fly on one of his planes again? But the central banking echo chamber is not like that even when they present devastating evidence of their own failure.

Wages have been surprisingly weak for much of the period since the global financial crisis. Chart 1 plots
successive Bank of England forecasts of wage growth since 2012. Wage growth in the UK has persistently
disappointed to the downside, on average by around 1 ¼ percentage points one year ahead.

You see our “loose cannon” knew this last August albeit a year less of it yet he still ignored his own frailties and ploughed ahead in that combination of arrogance and panic that we see from the central banking fraternity at such times. Yet in spite of such failure look what happened only last week.

Andrew Haldane, Executive Director, Monetary Analysis and Statistics, and Chief Economist at the Bank of England, has been reappointed for a further three-year term as a member of the Monetary Policy Committee with effect from 12 June 2017.

Rewards for failure indeed. As I asked at the time on what ground was he reappointed please?


There is much to consider here as the themes of the Bank of England being the worst forecasting organisation in the world and the advent of “Carney’s Cronies” have been in play. However in the speech by Kristin Forbes there was also a confession of the earliest theme of this website so let us get to it.

Even more striking is the lack of other countries’ ability to sustain any tightening in monetary policy since the

They are in their own junkie culture style trap but as it is Glastonbury weekend let me hand you over to Muse for a description.

I wanted freedom
Bound and restricted
I tried to give you up
But I’m addicted

Now that you know I’m trapped sense of elation
You’d never dream of
Breaking this fixation

You will squeeze the life out of me



27 thoughts on “The cracks at the Bank of England have become fissures

  1. A consistent theme seems to be MPC members telling us what they really think as they leave the MPC!

    If they had any integrity they would resign rather than stay mum while on the committee whilst also getting a handsome pay packet at taxpayers’ expense.

    • If I had to guess from her comments above, I would guess that Carney’s first action when appointed in 2013 was to tell all members of the committee that the time for leaks/public disagreements etc was over and that this is her taking revenge.

    • ” If they had any integrity they would resign rather than stay mum while on the committee whilst also getting a handsome pay packet at taxpayers’ expense. ”

      they weren’t hired for integrity , they’re all good jolly chaps

      so nothing could go wrong ……..umm


  2. 100% due to these incompetent nation wrecking fukwits and their policy of 0.25-0.5% interest rates, QE and all the rest aimed solely at boosting asset(house) prices up to never before seen levels i now plod along and just earn tax threshold and let the state gift me a ridiculous amount of money for having a kid. They have made working hard (as i did for over 20 yrs mostrlyin heavy industry) and being productive a pointless exercise. As the gains in life one once got from working hard have been removed.

    So i am doing my bit to bring inflation & productivity down mainly due to QE/ZIRP … must be many millions of under 45s just like me who just can’t be ###### to put in effort any more.

    The Tory party who are in charge of the BoE and could do something about them, will write in the Telegraph and acknowledge the inequality such policies have caused but will then do sweet FA.

    This Tory lot are so incompetent they’re making Brown/Blair look like they knew how to run an economy.

    • Great post Arthur.

      ‘The Tory party who are in charge of the BoE and could do something about them, will write in the Telegraph and acknowledge the inequality such policies have caused but will then do sweet FA.

      This Tory lot are so incompetent they’re making Brown/Blair look like they knew how to run an economy.’

      Good to see you swiping across the political spectrum as they’re all to blame in my opinion.

  3. As Nicholas Taleb has been constantly pointing out, these experts who appear to constantly get things wrong never suffer from it . They have no skin in the game, moral hazard was destroyed which probably explains why we appear to be repeating the same mistakes. Why should Carnage give a damn ? He has kept the financial interests propped up & will no doubt we welcomed with open arms by the same in one form or another & even if it is eventually realised that he was a rat that helped to sink the ship before jumping, it will be no skin off his nose.

  4. Yes Shaun, I was very quick on the FT when I saw AH’s comment. That guy has said some unbelievable thing sin the past and I think that outburst was just “spread-betting” because he knew Kristin was going to spill the beans.

    Still for all this theatre, where are rates?

    Time for some exterior cladding on the BofE I think, so they can feel the heat of real people.
    Paul C

    • Hi Paul C

      I think I can figure out the kind of exterior cladding you have in mind! As to the MPC much of this is bizarre as Andy Haldane has only just stopped wanting “more,more, more” and now wants us to believe he is thinking of raising rates. In reality Forbes is leaving and being replaced by a fan of negative interest-rates so the arithmetic has moved against a Bank Rate rise.

  5. It appears that from time to time they have decided to create the illusion of dissent to Mark Carney or should I say “independence”, to try and fool people into thinking there is a possibility of a rate hike when there is absolutely none.

    As for Andy Haldane being a loose cannon, I expect at meetings for the next six months or so until the next false vote to raise, he will be fully tethered and back on message.

    • Hi Kevin

      Perhaps Andy Haldane got wind of Kristin Forbes speech and her mentioning of the fact that none of the “internal members” have voted against Mark Carney. So he thinks he is showing he has an independent mind whereas in reality he looks something of a fool.

  6. These days none of this surprises me.They’re all so compliant when they’re in there,not wanting to upset the apple cart.

    Albert Edwards has a great piece in Zero Hedge that’s really worht a read where he talks about how the people will turn on CB’s when they realise what they’ve done.
    ‘Anecdotally we all know wealth inequality has risen due to central bank QE and free money. Although we can see and feel it, it is reassuring to see firm evidence. This week the UK Resolution Foundation published a damning report into rising wealth inequality in the UK (this UK think tank is led by David Willetts, who during his political career was known as one of the most intellectual of MPs – his nickname being “two brains”). The report found the key driver for rising inequality was the collapse in UK home ownership since the 2008 financial crisis to a 30 year low: link and link.

    Like so many economic commentators and think tanks, the Resolution Foundation doesn’t seem to want to pin the proverbial tail on the donkey – for it is not the lower homeownership that is the real problem per se but the fact that QE is driving up asset prices that households no longer own! (In addition, zero interest rates have driven up buyto- let investment demand for housing hence reducing the supply of housing for owner occupation). While UK home ownership is now at a 30-year low (link), the US too has seen a similar shocking plunge in home ownership (see chart below).

    At least in the run-up to the 2008 GFC, owner occupation in the UK and US surged along with house prices and so working people had the illusion they were getting richer along with the rest of the population. Now there is no such illusion for what has been dubbed “generation rent”.’

    • Dutch, I’m afraid the people will never turn on the central banks because most of them do not even know what they do, yes there are a few sites like this and Zero Hedge that try and educate people, but what proportion of the voting electorate could explain how central banks work? a couple of percent?
      So by the time the middle classes have been bled dry by QE,ZIRP,inflation and below inflation pay rises, the globalists will have the next stage of their plan to solve the inevitable collapse and/or civil unrest.The politicians of the day will be blamed, outed and the new party will propose emergency measures already prepared for them by central bankers.
      They will be portrayed as the saviours by the mainstream media not as those who caused the problem. Anyone pointing out the obvious lie will be called a conspiracy theorist(as they are now).
      My betting as I’ve said on here before is the Universal Basic Income, by then the almost starving masses will grab it with both hands, then the state will provide free money for essentials and free healthcare, everyone will be trapped in state control.
      Expect to hear more and more references to it in the coming years and it being touted as the solution to all our growing problems.

      • Kevin I agree with you about the ignorance of the population.
        This is why we have Brexit and the rise of Scottish nationalism and he election of Trump.
        These are not solutions they are responses to the populations diminishing wealth we have exponentially expanding debt/currency which are the problem that is not understood nor is it being addressed by politicians.
        As something becomes more abundant it’s value drops as currencies expand their purchasing power decreases,this is not rocket science.
        Inflation was blamed on rising wastes in the 1970’s inflation is a monetary issue wages are falling ,prices are rising the old bogey man of union militants cannot be blamed,the cause is clear the Banking Mafia.
        Fiat currency systems always fail due to expansion .

  7. and echoing a common theme on here
    ‘While politics in the West reels from a decade of economic crisis and stagnation, asset prices continue to surge on the back of continued rapid growth in G3 QE. In an age of “radical uncertainty” how long will it be before angry citizens tire of blaming an impotent political system for their ills and turn on the main culprits for their poverty – unelected and virtually unaccountable central bankers? I expect central bank independence will be (and should be) the next casualty of the current political turmoil.’

    • Hi Dutch

      That would require the citizens to understand what the central banks have done. Yet the mainstream media even anxious for interviews and getting questions at press conferences mostly reports in fawning terms. The FT should have aspired to higher standards but it resorted to “rockstar” central banker for Carney and of course was cheerleading for the rate cut last August. Also it has a strong establishment bias meaning that even if the ordinary person did read it they would have to read between the lines.

  8. As someone approaching retirement age, I would say that QE has done two opposite things:
    1. My house is worth more, but it is not an investment. It is where I live;
    2. It has trashed my pension. I was sent my annual statement last week and the pension quoted was 2.5% of the capital saved if I retire at 65. I wish that I had never bothered paying into the scheme.

    • I retired 3 years ago but cashed in my pensions 6
      years ago because at the time yields were on the
      slide and still are. Like you, I feel that the system
      was and still is pointless.

  9. I assume that Andy Haldane agreed with the policy of “looking through” inflation increases in 2011 in which case his musings now are not at all consistent because the circumstances are almost exactly the same as then in which case he should be standing pat. The only circumstances in which he could not do so is if he saw the fall in sterling as continuing and/or there were secondary effects of exchange rate depreciation on wages, neither of which has any evidence to support it at the moment.

    I would characterize all these things as central bankers kabuki, a form of slow moving theatre which is designed to obscure the fact that they do nothing for 99% of the time; something which is ambiguous for 0.5% of the time and something which is totally destructive for the rest; it’s a distraction mechanism to obscure their own impotence and incompetence.

    • Hi Bob J

      I think you are right that Andy Haldane is something of an attention seeker. It must be all those years he spent hidden in the Bank of England’s bunker! As to 2011 he wasn’t on the MPC as I think he only joined in the summer of 2014.

  10. Hi Shaun
    The cracks have become fissures but will we ever get
    an eruption.
    We all understand that the “Independence” of the BOE
    is a farce and that every new appointment will be scraping the
    barrel for new yes men or women. Even in the unlikely, almost
    impossible event of a rate increase I think that the likely effect
    would be no mortgage or savings rate increases, just higher
    charges for SME’s whom the banks won’t lend to anyway.
    Won’t get fooled again.


  11. Kamal Ahmed refered to Andy Haldane as ‘Britains leading economist’ on a BBC bulletin yesterday……the prosecution rests.

    • Hi Private Fraser

      The idea of a BBC economics blog was a good one. Sadly Stephanie Flanders chose to politicise it which only got worse when the political journalist Robert Peston got the gig. I rarely look now and whenever I do Kamal seems to always be discussing Brexit and nothing else.

  12. Great blog as always, Shaun. Thank you for highlighting Kristin Forbes’s speech, and for the excellent critique. There is a lot of meat in it, and even you couldn’t cite everything of note in it. Forbes didn’t seem to notice that the three Anglosphere countries that she puts in the aborted launcher category all started raising their bank rates much ahead of the US Fed, and all three of them have housing prices in their target inflation indicator. Two of them, Australia and New Zealand, have a net acquisitions approach to owner-occupied housing in their CPIs. The operational guide (preferred core inflation measure) for Canada was the CPIX, which approximates a consumer price series with an OOH(NA) component. (The current operational guide is much inferior.) I suspect that if the Bank of England had still been targeting the RPIX in 2009 and after it would have been in the launcher category too.
    The Bank of Canada’s return to normal interest rates aborted after 2010 partly because, as Forbes put it, macroprudential instruments took the burden off interest rate policy. Unlike the UK, these instruments weren’t usually in central bank hands, but Governor Carney was wont, when Finance Minister Flaherty announced some new intervention in the residential mortgage market, come around for the announcement and speak as well. You got the impression that he was doing all the heavy lifting himself.
    Happy St. Jean Baptiste Day! It is the 24th of June. Rue Ste. Catherine is the main street of Montreal, but the McGarrigle sisters are the pride of the Laurentian village of Saint-Sauveur-des-Monts.

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