Sunday, 6 February 2011

Bank of England Base Rate

link to the source data

The Bank of England base rate, the graph tells a familiar story: during the noughties the BofE kept rates lower than the post WW2 average, and when the Crunch came their response was a wall of cheap money and ZIRP (zero interest rate policy). Quite what it will take for the monetary policy committee to normalise rates I don't know, but if we really are at 'peak debt' (as many argue) then a rise in rates would prove disasterous for the most heavily indebted over the short/medium term. The knock on effect to the banking system would be rapid as financial assets were destroyed, and this would plunge the country back into recession. Although arguably this is what we need -creative destruction and all that- the consensus is to put off the pain for as long as possible.

The worst case scenario would be to discover we've merely wasted 3 years with delaying tactics, if New Labour had allowed the banking collapse to proceed we could have been through the worst of it by now.

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