UK macro challenges appear between lines of latest Bank of England notes, says World First’s Jeremy Cook

Jeremy Cook, chief economist at foreign exchange company World First, believes that the latest minutes of the Monetary Policy Committee published by the Bank of England point to deep ongoing problems in regards to earnings growth required to help get the country out of crisis.

These are the most dovish minutes I have seen which have still not resulted in a policy change. Policymakers hinted at everything from a rate cut to buying other assets, as it hopefully becomes clear that the marginal returns of additional gilt purchases are diminishing.

However, a rate cut is not the answer, nor is a cut in reserve rates as it would squeeze margins and there is no guarantee that funding would lead to further business loans.

The ‘dovishness’ of these minutes has pushed GBP to an 11-month low against the euro, a further sign that the Bank of England is competitively devaluing the currency in a bid to bring exports into the UK economy.

It hasn’t worked over the past four years and I would like to know why they think this time will be any different.

The higher inflation that the Bank of England will force upon the UK populace will be made more painful by the on-going stagnation in UK wages. The recent gains in employment are a good sign, but will raise questions around productivity if a subsequent increase in output is not seen – with fears that people are taking on low-paid, low-skilled jobs in order to make ends meet.

Combine that with the knowledge that people are neglecting to ask for pay increases and are happy for wages to stagnate at current levels in order to remain employed – and the problem becomes clear.


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