Forget what the MPC says, money is still going down the wrong channels

On the surface, the news that Monetary Policy Committee members voted unanimously at the beginning of this month in favour of a hold on rates and to continue with its existing programme of asset purchases, might give the impression that the MPC is a tightly knit unit with a firm grasp on what is happening in the UK economy — and a unified sense of direction.


The truth is quite the opposite.

In its latest set of minutes for September, published today, the MPC said that the near-term outlook “was for a less rapid fall in inflation than the Committee had thought at the time of its August Inflation Report projections”.

Looking forward, it also notes that the outlook for inflation will depend on the numerous headwinds from overseas and at home — not to mention “substantial risks” from the euro area which, “if they crystallised, could have a considerable impact on the stability of the global banking system”.

Now let’s break this down. In a matter of months, the Bank’s view on both inflation has performed a spectacular volte face.

Inflation is no longer falling to earth like a Branson balloon, as we were told it would, but is coming down like a feather — and could easily get blown back up again. The minutes definitely lacked confidence about the direction of inflation.

And in economic terms, we’ve gone from slow but gradual recovery to potential armageddon. We’re back to system stability alerts, which is all very 2008.

The MPC, it has also emerged, finds it encouraging that the Funding for Lending scheme has seen a number of high street banks cut rates on some of their mortgage products.

But as far as I am aware banks are still not lending where they need to, namely at higher LTVs. What money there is, is going down the wrong channels.

All in all, you have to wonder why the minutes, why the MPC, with its ever-changing forecasts, gets even a minute of our attention. We would do better to read about facts rather than fiction.