Interest rates

For anyone considering a career in economic forecasting, the Bank of England’s inflation report for August 2007 ought to be required reading. A graph illustrating its Monetary Policy Committee’s ‘best collective judgment’ of annual economic growth two years ahead is fixed around a central prediction of 2.5 per cent, with extreme boundaries of 0.8 per cent and 4.2 per cent. But after two years, economic growth was running at –5.6 per cent, and the economy had just completed its fifth consecutive quarter of negative growth. The finest minds of Threadneedle Street could not see two years ahead.

Oh dear. Mark Carney is irritated. His proud independence has been challenged. The Prime Minister had the temerity to admit that she was not altogether thrilled with his ‘super-low’ interest rates and quantitative easing. These policies meant that people with assets got richer, she pointed out. ‘People without them suffered… People with savings have found themselves poorer.’ Mr Carney found this intolerable and haughtily rebuffed her, saying, ‘The policies are done by technocrats. We are not going to take instruction on our policies from the political side.’ Back in your box, Mrs May. Carney’s in charge!

What should we think about negative interest rates? What kind of Alice in Wonderland world are we living in when companies and households are paid to borrow and charged if they save? Seemingly crazy, negative interest rates are spreading nonetheless. Implemented by central banks in Europe, Japan and elsewhere, they now apply in countries accounting for a quarter of the global economy. Should we be worried? Could we see negative rates in Britain? Earlier this month, the Bank of England cut interest rates for the first time in seven years, from 0.5 per cent to a new record low of 0.25 per cent.

Home David Cameron, the Prime Minister, announced, as part of the Strategic Defence and Security Review, plans for two 5,000-strong ‘strike brigades’ that could respond to terrorist attacks on Britain. Spending on defence would go up by £12 billion, keeping it above 2 per cent of GDP. The estimate for replacing Britain’s four Trident ballistic missile submarines rose from £25 billion to £31 billion. The Nimrod maritime patrol aircraft, scrapped in 2010, would be replaced with nine Boeing P-8s. Aircraft for the Navy’s two new aircraft carriers would be ready by 2023. The government made preparations for a vote in the Commons in favour of Britain bombing Islamic State targets in Syria.

Like the Christmas pudding sampled by Hercule Poirot at Kings Lacey — but six weeks early — our Spectator Money supplement contains a little treasure in every portion, and perhaps even a priceless gem. I particularly commend the essays by Warwick Lightfoot and Subitha Subramaniam on interest rates, and why central banks have become so hesitant to raise them. In recent days we’ve had an indication from Mark Carney of the Bank of England that UK rates will stay at their current low well into next year, maybe until 2017; in the US, strong job numbers have pumped expectations that the first rate rise for nine years will be delivered by Fed chairman Janet Yellen in December.

Home A hundred firemen could not prevent wooden cooling towers at Didcot B gas-fuelled power station in Oxfordshire from burning down. A consortium said it could power 2.5 million houses in Britain by 2018 with solar energy generated in southern Tunisia. The Bank of England indicated that interest rates would stay low for longer because of a poor outlook for the global economy. Government borrowing rose to £11.8 billion in September: £1.6 billion more than a year earlier. HSBC offered a mortgage at 0.99 per cent interest. The government is to pay a bounty of £55 to GPs for every patient they diagnose with dementia.