Speaker 0:
Inflation, the watchword of the post COVID years in the UK consumer price inflation hit a 40 year high in October 2022. And it was a similar story across Europe and the US. But why as other developed economies begin to see their inflation rate come down as the UK S inflation rate remains stubbornly sticky. How much criticism does the Bank of England deserve? And how much is out of its control? Getting inflation back down to a 2% target has a long way to go

Speaker 0:
and central banks will with a difficult tightrope while raising rates go too far and you risk a recession.

Speaker 0:
And what does this all mean for consumers? What's the value of the pound in your pocket

Speaker 0:
as prices continue to climb? The value of that pound declines UK gas and electricity prices increased 32.6% and 17.3% in the year to June 2023. While the price of food and non alcoholic beverages went up by 17.4% over the same period after the Bank of England's 14th successive rate hike creeping up to a level not seen in 15 years I spoke to Janet Moy, head of market analysis at R BC. Doin.

Speaker 1:
Yeah, I think if you look at what the market is pricing in, they are pricing in a further 2 25 basis point rate increases. So likely taking us to 5.75%. So that is way below where uh some of the uh previous expectation were, which is as high as 6.5%. So that, that has alleviated. Uh We think that there could be potentially one or two more. Um Who knows? I think depending on really how fast inflation is coming down, I think the Bank of England certainly left the door open for further

Speaker 1:
rate hikes. And if you look into what they wrote in the monetary policy report, they say that the persistence of inflation in the UK is likely to be scaled to the upside. So they are still very much worried about inflation even though it has recently surprised to the downside. So I think there is likely to be at least one more rate increase.

Speaker 0:
Do you think they're moving too quickly? Because once you take into account lags and how long those lags take to, to come through causing recession is surely not the aim here for the Bank of England.

Speaker 1:
Yes,

Speaker 1:
I think that is the difficulty of monetary policy in general. There is always this risk of causing a recession because as you mentioned, there is a long and variable lag uh, how, how it works. It is very difficult. I mean, I think the Bank of England, first of all, they moved uh, slower than the other central banks. That's why they're trying to play catch up. I think the reason why they moved slower and more gradual is because exactly what you said, they knew that, um, the impact is going to take a while the fixed,

Speaker 1:
uh, mortgages in the UK, in particular, it means that the transmission mechanism is, is going to work eventually. But you don't know exactly um how long it's going to take. So that's why they have been cautious. But unfortunately, we are seeing one of the highest inflation rates in the major economies and very sticky core inflation. So I think that's why they moved uh previously 50 basis point. But because inflation has surprised the downside, they were able to actually have some breathing space to move by 25 basis point.

Speaker 1:
So I think it really, you know what they're going to do next. Definitely depends on the trajectory of inflation data

Speaker 0:
and let's look at the supply side. So manufacturing output has fallen to its lowest level since early 2020. And what with China's faltering recovery and weak growth in the Euro zone? Is there any optimism in the UK? I know forecasts have said that the eurozone in general is going to have a weak second half of the year.

Speaker 0:
What's looking good for the UK at the moment. Yeah,

Speaker 1:
so I think you mentioned one of the weaker parts of the global economy, which is the manufacturing sector. We're seeing the weakness not just in the UK but across global economies, right? Whether you talk about uh developed or emerging economies, the more positive side at least is that for the UK, the manufacturing or industrial sector is actually a relatively small part of the economy, right? We're very services based and so far

Speaker 1:
that part of the economy has remained quite resilient. Thanks to the soul, still resilient labor market. Uh wage growth is, you know, over 7% year on year. And at some point when inflation slows finally, workers will see the wages keeping up with inflation. So I think eventually that is going to be a positive boost for the ordinary workers. And I think the other optimistic part is that um

Speaker 1:
the sterling exchange rate, I mean, it has been one of the better performing currencies. I mean, recently we have seen a bit of reversal but the stronger pound is actually pretty good for fighting inflation, right? That helps with lower imported good prices. And we also are likely to see um further slowdown in the energy prices in the coming future because of uh how the off jam price cap mechanism works. So that is going to be contributing a significant downside pressure on inflation. I think these are the

Speaker 1:
domestic part and if I can add more, we are starting to see some pickup in the construction. Uh PM is for example. So there seems to be some uh I mean, the housing market, a lot of gloom and doom but so far it has actually remained resilient versus to many people uh gloomy expectations.

Speaker 0:
You said it was a small part of the overall UK economy, but they did say the Bank of England that the sharp decline in the cost of raw materials and goods is yet to feed through into that CP I. Is that another big boost for them?

Speaker 1:
I think. So, I mean, if you look at the producer prices, input and output prices and they tend to lead the actual consumer price index and they, they are heading in the right direction. There is a very high likelihood that consumer prices will slow because these raw material costs, these commodity prices, this food prices are going down. But the problem

Speaker 1:
I think and the Bank of England has pointed out in the monetary policy report is that because we had such a huge volatility and uncertainty in the markets previously, it may take actually some time for these uh fluctuations to eventually calm down compared to historical norm. So for instance, a lot of companies, they may have fixed their input cost at relatively high levels because of the nature of the supply contracts.

Speaker 1:
So they may not actually be able to reflect the the lower commodity prices to their goods prices. Yet. And of course, a huge part of the input cost is wages and that has not really come down yet, although we expect that it will. So I think the, the input cost, output cost, yes, they're coming down. But it may take longer to filter through to eventual prices compared to our previous history.

Speaker 0:
And I wanted to finish with this and this is not a classic inflation that we've got at the moment of too much money chasing too few goods. You have factors like the war in Ukraine

Speaker 0:
and Brexit. Does that take a lot of the power out of the Bank of England's hand? What can they really control with this CPR number?

Speaker 1:
Yeah, I have to agree. I think there are many areas that the Bank of England has very little control about. I think uh the bank may not directly admitted it, but for example, the European Central Bank President Christine Laga mentioned they have little uh say on the energy prices, for example. So for example, the energy prices element, the food prices element

Speaker 1:
that what is happening internationally um is difficult to control. But you know, monetary policy, I think the reason why it tends to cause recession when we have a tighten cycle is exactly because of that nature. It is a blunt tool, it is very powerful but you cannot surgically um correct the part of the economy that causes inflation.

Speaker 1:
It is an ideal scenario, but it is difficult to do so. So I think the monetary policy that we have, it is to balance the aggregate demand and supply of the economy. It has always worked like that. And this is unfortunately the only tool that the bank has. So I think

Speaker 1:
unfortunately, there will be a certain area of the economy that were particularly hard heated. For example, the housing market in particular, there will be certain cohort of the society, For example, the mortgage holders that need to refinance, they will uh share a big burden of the pain. But unfortunately, this is how the monetary policy corrects demand so that it slows the economy slows wage growth and slows inflation.

Speaker 0:
Now wages have been positioned as the bogeyman of the inflation debate. Indeed, Hugh Pill Bank of England, chief economist said people in the UK need to accept that they're worse off, stop trying to maintain their real spending power by bidding up wages. But the inflation pitch is more complex than just wages.

Speaker 0:
The Bank of England was relatively slow to raise rates. Global supply chains look markedly different than before. The pandemic job vacancies remain unfilled and corporations have sought to protect profit margins. Consumers have demanded higher wages in response to higher prices, not higher wages driving prices up.

Speaker 0:
I asked panel, Gordon's chief economist Simon French on whether the debate has been too focused on this wage push inflation.

Speaker 0:
Well, certainly the debate has been brought into pretty sharp relief by comments from the Bank of England, the chief economist Hugh Pill also, Andrew Bailey just wading into a debate on what is contributing to inflation. To be blunt, the job of the Bank of England is just to control inflation using its policy toolkit rather than to opine who should take the the hit.

Speaker 0:
In recent days. We've seen comments about the share of uh labor within GDP, share of wages within GDP. That's been pretty constant. It has to be said for the last 20 or so years.

Speaker 0:
So there's no real evidence that a greater share of the pie is being taken by labor and hence that wages are fueling inflation. I think it's much more that the this extraordinary shock in energy markets that's translated through to food has just meant the workers have tried to bid up to keep pace with the overall price index which has been changed by non labor items.

Speaker 0:
So price wage spiral as opposed to wage, price spiral. Yeah, I think that's right actually. And um look at a lot of people whose entry level economics looked at the Phillips curve which is underpins a lot of the workhorse models of central banks or the tide of the labor market being a key driver of core inflation.

Speaker 0:
But actually, if you look at the record of tight labor markets and bargaining power as a driver of overall inflation, it's pretty poor. It's one of the reasons why central banks even before the current inflation surge were coming under criticism for their models not being able to predict

Speaker 0:
the pathway for inflation based on those output gaps, those labor market factors. And do you think the timid timid or transitory approach that they took in the policy response is the reason why the UK is lagging behind a lot of other developed economies at the moment? Look, I know that's a criticism that has gained a lot of currency. But let's remember that the Bank of England began its rate hiking cycle before the Federal Reserve and before the ECB,

Speaker 0:
the Bank of England ended its QE process before the ECB and before the Federal Reserve. So the idea that they were slow off the mark doesn't really stand up to scrutiny however, and was a however coming, you knew that um there is a situation where the history of inflation in the UK economy

Speaker 0:
has been more stubborn and has gone higher over if not, maybe the last 25 years, certainly over the last 35 40 years. And therefore, should that have been the back of the mind of policymakers that if you like structurally,

Speaker 0:
the fear of uh embedded inflation expectations are probably more likely in the UK. I think that is the criticism rather than necessarily having gone too late and having not gone fast enough. It was perhaps the knowledge of the structure of the UK economy, particularly in the context of additional costs being added through the Brexit adjustment process, would that have been a reason to go on a slightly different path to the one that largely mapped what the Federal Reserve did

Speaker 0:
and going back to wages and in particular wage restraints at a time when households already stretched does dampening demand work. And when you look at economic activity as well, when you consider strikes that we saw with the rail network and with the doctors, all of that compounding is it's not a good picture.

Speaker 0:
No, it isn't. Um Although there is a danger and we've spoken about this before that UK economic commentary gets a bit too um parochial, a bit too focused on domestic factors. Some of those issues strikes um a slow growing economy, you could transpose that into an Italian context, a German context, a French context, even in the US context, Canadian context and Australian context. So

Speaker 0:
yes, there are specific problems of of productivity, the uh additional frictions on the supply side of the economy that are impeding uh growth. But back to the first part of your question on whether demand suppression is the right toolkit to deal with the current amount of inflation.

Speaker 0:
I think the reality is that when inflation went as high as it did, even though it might not have been demand driven, there were understandable fears and there still are understandable fears that expectations decouple and if expectations decouple, then it becomes much, much harder to put the inflation genie back in the box and therefore some demand suppression even against the backdrop of not particularly strong demand,

Speaker 0:
I think was necessary to send a signal to households and businesses that the major tool with which we deal with the inflation was going to be utilized to get inflation back to target over a two year horizon. Um I've heard it described and I think it was actually someone in the Bank of English. It's a blunt tool. You can't be precise in where you're impacted, but it has to be a catch all blunt tool. That's right. And, and if we go back to why and the monetary policy is used

Speaker 0:
uh versus fiscal policy, for example, because some people in the economic commentary suggesting actually fiscal type thing is one of the uh um other ways in which you could suppress demand which wouldn't hit perhaps mortgage holders as hard but would hit other parts of the economy to try and suppress their elements of demand. Um

Speaker 0:
The problem with fiscal policy, which is as blunt and arguably blunter than the monetary policy is that it has distortion effects on behavior. And we tend to look at monetary policy although blunt as relatively neutral in terms of those behavioral incentives versus fiscal policy, which has some quite significant behavioral incentive effects. The last one I wanted to finish on and when we're looking at how much is out of the Bank of England's control, Brexit and the war in Ukraine,

Speaker 0:
when you look at or when you look at what can be affected, how much really is under their control when they're looking at the, the key CP I rate. Well, it's an excellent question and we have to remind ourselves that the UK is about 3% of the global economy when you're talking about financial conditions, um the demand in various uh quite diversified markets with very global supply chains,

Speaker 0:
the ability of the deposit rate set in the United Kingdom to influence all those factors is quite limited and you won't get many central bankers, not ones at the Bank of England, if you like readily admitting that. Although credit to Andrew Bailey, not a phrase that's been used a lot recently, he did say at select committee that um certainly allude to the fact that he's not fully in control of uh the economic conditions that determine inflation.

Speaker 0:
But there is a uh domestic lens to all of these which the Bank of England um is tasked with with trying to influence. It has to recognize what it can't influence, but make sure it's best in class, influencing those things that it can,

Speaker 0:
it was certainly easier in a low inflation environment for central banks kept low in parts by globalization. But as those tailwinds fall away, policymakers must make some difficult calls and the steps have certainly been made. And this has damaged public faith in their ability to keep a lid on inflation. But is there a danger of overkill from the Bank of England in bringing that inflation rate down? Perhaps not letting lags play out before raising rates again. Well, I put that same question to church house investments, joint cio and director James.

Speaker 0:
I do think there's a risk that they overdo it. Um, I think they were too late to get going in common with most of the central banks. Um, so they have ground to catch up and I think personally they've got ground to catch up because they want to get their reputations back. Um

Speaker 0:
The problem is that, uh, it's not just a monetary phenomenon, what, what's actually happened, that isn't what has led to all this inflation or it was part of it, but it wasn't all of it. Um, so,

Speaker 0:
uh I think that I think they will carry on. Um, but yes, I am definitely concerned that they're going to overdo this, but I think there is distinct risk of overkill at this stage is that in the sense because there's a lot of things out of their control. So you're not a monetary phenomenon, but a lot of this is, is away from the levels at which they can use to bring it down. It, it's more that

Speaker 0:
the inflation wasn't entirely caused by monetary issues. I mean, partly it was, but it wasn't entirely so, but it takes a long time for these things to work through the system and the impact of the increase in rates. Uh It's been a very fast increase in rates and you've got to remember it was after 11 years of rates sitting on the floor far too long.

Speaker 0:
Um So the impact is hard to quantify and it takes time to work through all of these things. Um There are lags. So the initial impact of inflation is on the goods prices and then it works through the services sector and that's what we've seen and now we're all worrying about the services sector. Um So, but these lags are, they are there, but I think inflation is coming down

Speaker 0:
and now I think they should stop and pause, but I don't think they will. Ok. So do you think there's a bit of a misunderstanding of, of how the lags work and with 11 years of rates very low, we've underestimated how much of an impact they have. Well, I think there are always lags but possibly they're even worse than normal at the moment. And therefore, do you think we'll settle, or the Bank of England will settle for more of a, a 3% 4% target if they can't bring it down to that too? And, and what are the implications of that if we do settle on, say 4%?

Speaker 0:
Uh I would hope that they don't settle on a 4% target. Um I think a lot of intellectual capital has been invested in this 2% figure

Speaker 0:
and it is a fairly internationally accepted figure. Now, um,

Speaker 0:
and I think if you go back to my point on the value of money,

Speaker 0:
even at, at 2%

Speaker 0:
after 20 years, your money is still worth two thirds of what it was at the start. So, ok, it's not great, but it's, it's better once you get up to 4% your money is really falling in value very quickly. Um So I, I think setting a higher target would be a bad notion. Um, at 2%

Speaker 0:
I feel like the intellectual case for 2% from the banks is that naught is too low because if you get to naught, there's always a fear that you're going to slip into deflation and depression and central banks don't think that uh wages can be cut and, and that's that, that's fair enough.

Speaker 0:
And the opposite side, obviously, once you get into this four or 5% value of money is going down so quickly, so hence you end up at this 2% level, which is as good as it gets. Plus if the Bank of England changed the target now and move the goalposts credibility will be pretty lost. But it's at a time when credibility in central banks is at a low anyway, that 2% target has to be hit. I think the US Federal Reserve has probably regained its credibility quicker than the rest of them,

Speaker 0:
um which is probably not a surprise. They did, they went into the inflation before everybody else. Um

Speaker 0:
And, and they're obviously, they're coming out of it coming out of it more quickly, but it does appear that they have got their credibility back. Um And that is important. I, I think one else has to think of the,

Speaker 0:
like the individual central bankers because they've come in for a lot of stick and I think as individuals, they don't want to

Speaker 0:
retire as being the people who let things slip into the 19 seventies again. So they have quite a lot invested in this themselves. I think that

Speaker 0:
the Bank of England probably has the lowest credibility at the moment, which is unfortunate. Um, and we've seen that in the last couple of weeks. So the Federal Reserve put up rates by a quarter percent.

Speaker 0:
That was exactly as expected. So it didn't really ripple the markets much, uh, and similar with the ECB and the markets really don't know what to expect. That seems to be most likely that it will be a quarter percent increase, but there's probably a third of a chance that it might be a half percent increase, but we don't know. So we're all

Speaker 0:
wondering again and going to a point of people aren't too sure what the Bank of England are looking to do or in the US. It's more predictable where here maybe not so much. Is that really the key to this whole argument? It's about expectations. Um And what people expect is, is really how they plan their, their next 5, 10 year cycle.

Speaker 0:
I think that is, that is important. Um And yes, that goes to the credibility point in that the fed probably is back at the stage where people are expecting inflation to settle back down again. Um

Speaker 0:
III I think the Bank of England will, will go too far. Um And the, the, the risk there as we were discussing earlier is that it tips the economy over the edge. Um

Speaker 0:
It, it, it's possibly worth stating that there is a,

Speaker 0:
there is a chance a reach quite a reasonable chance that we end up in what's currently being called a goldilocks scenario where inflation does actually come back down again without causing a recession um or without causing a noticeable recession. Um And that's because

Speaker 0:
there's been a big shortage of labor in the US, the UK Europe. And if you go back say 12 months or so,

Speaker 0:
there were a lot of firms desperately seeking employees. Um And

Speaker 0:
I think what's happened is that the rate changes we've seen have essentially taken that demand away. So they haven't actually taken away jobs, but they've taken away that extra demand. So people have stayed in work. Hence the uh economic stats have looked better. Um

Speaker 0:
There was a risk with that, of course, that that just means the banks keep it going too long and we tip into recession anyway. Yeah. Uh going back to monetary policy and I guess monetary theory or modern monetary theory, economists and central banks now assume that it will always come back to the target. How much of this, this transitory camp, um, that was apparent in the last couple of years. How much has that led to where we are now?

Speaker 0:
Yes. Um I think Mervyn King was referring to it as group think and I think it did feel a bit like that suddenly they all started talking about transitory inflation. Um And yes, I suspect they did believe their own publicity. Um They were all very big on transparency and their ability to forecast. Um And that clearly they weren't actually that good, is it?

Speaker 0:
And I think that they need to be,

Speaker 0:
I think they need to be a bit more flexible and, and, and

Speaker 0:
use the examples of history more. Uh I mean, I would point to the period after the end of the Second World War, which is actually not that dissimilar to the end of the period after, after COVID, when so many people died, when we couldn't spend our money. Um And if you go back to that period after the war,

Speaker 0:
that burst of inflation lasted for my best part of two years. Um And I think that sort of example was better and to suggest that it was going to last for six, maybe nine months.

Speaker 0:
Yeah, that wasn't great

Speaker 0:
given how easy it is to create money. And that was evident in the response to the COVID-19 pandemic. Have we lost sight of the origin and the value of money? We heard a lot about transitory inflation, namely that a temporary rise in prices would return to prices that people expect and those expectations are driven by an inflation target. But what's in a target? A useful benchmark doesn't need revisiting in this new environment. We'll ask economist Ann Pettier whether we need to revisit our fundamental understanding of the role of money in our economy.

Speaker 0:
So an a, a big one to start off with, you're the author of the production of money and in it, you point out that money is relatively easy to create. In fact, banks do it all the time. And again, this is a big one to start off with. Do you think we have a, a misunderstanding of, of what money is and its role in society?

Speaker 0:
Absolutely. And the, the fault lies with economists, um economists don't teach uh the nature of money in their economics courses on the whole it's beginning to change. But, you know, money is so fundamental to the economy that it's surprising that it's that.

Speaker 0:
But also there's been this very old fashioned notion that money is silver coins or gold bars or cigarettes. When actually money is just a social construct, it's just a promise to pay, it's an obligation. And every time we um take out a loan,

Speaker 0:
uh, from the bank, uh, we promised to repay it over a period of time and at a certain interest rate and the bank doesn't have the money in its vaults. It's not as if the bank is lending Mrs jones' Savings to Mr Smith. And what the bank is doing is out of thin air. It is creating,

Speaker 0:
uh, new money. It's entering numbers into a computer and invariably transferring that to your computer or to your bank account. And, um, and then it's made, I mean, it's not a very sim it, it sounds a very simple process, but of course, it isn't because ultimately, you sign a contract, you promise to pay, you have

Speaker 0:
an obligation to do so at a certain time and at a rate of interest. And if those, all those elements go towards enabling you to have money above all, you have to have collateral in order to borrow a million pounds to buy a flat in London, you've got to have some form of collateral that the bank could fall back on if you were to default on your loan. So that's how money enters the economy is through,

Speaker 0:
uh the bank, through lending essentially and through then once it's in the economy and moving around, then of course, we lose sight of its origins uh quite easily because we get paid at the end of the month and we think it just comes out of thin air and going back to your point on economists, do you think? And maybe the issue that inflation is at the moment across developed economies and what Mervyn King described as academic group, think among young economists, do you think that's really at the heart of the issue?

Speaker 0:
It is at the heart of the issue, you know, uh the, you know, the, the monetarist idea was that, you know, too much money creates inflation and we know that inflation, it's got a variety of sources. There are a variety of reasons uh for uh in inflation to exist. And monetary theory is quite out of date and was very discredited during the thatcher era uh when, when they argued for austerity. Um

Speaker 0:
uh so, but what we need to look at it is what is the cause of today's inflation and the cause of today's inflation is not wages, wages are falling in real terms, wages are still 2.8% below what they were in 2, 2008. Whereas, you know, prices have moved an awful lot since 2008.

Speaker 0:
And that's because uh the prices that are the inflation that we're enduring at the moment has its roots in the commodity markets and the commodity markets are global. And you know, the, the notion that President Putin can determine the price of oil is really uh delusional.

Speaker 0:
Um Putin has no power over the price of oil nor indeed do the Saudis the price of oil is determined in commodity markets. And largely I if I may say so,

Speaker 0:
not just by producers or consumers of oil, but by speculators, an enormous amount of money goes into speculating on the movement of commodity prices. And that as explains in my view, the recent inflation, it's not a matter of supply and demand. There's been enough oil to go around.

Speaker 0:
Uh Thanks thanks to the Americans uh reserves which they've uh downloaded and there's been enough grain to go around because when, when, uh the Russians cut back on, um, grain supplies or Ukrainian grain supplies, grain supplies from elsewhere emerged. So it's not a supply and demand issue that causes prices to rise. In this case. In my view, it's largely speculation in commodity markets, global commodity markets,

Speaker 0:
going back to monetary theory, I guess in the sense that so it's changed. So inflation was always a monetary phenomenon. It's now inflation is always a transitory phenomenon and it will always come back to this target. Um, because that's where people's expectations are. But again, does that have a fundamental misunderstanding of, of how money works in this sense? Yes, absolutely. You know, people's expectations aren't setting those prices. Um

Speaker 0:
And yes, people will be, you know, they will be saving more because they can't afford, they can't afford to spend first of all their wages in real terms, relative to inflation are still low, except for a small part of the economy in business and finance, their wages have risen, have risen. And secondly, prices are often beyond their reach, you know, for perhaps buying a new house or a new new apartment. So, um,

Speaker 0:
so that might be a reaction. It's not an expectation. People do expect to be able to buy a roof over their heads, but they, they may be forced into saving by, by current conditions. So, yes, you know, an excess supply of money if there is far too much money in the economy, if the banks are just being very reckless in creating credit and not measuring and as assuming

Speaker 0:
and and correctly assuming the amount that can be repaid, then you may get some inflation from, from too much money creation. But on the whole, there are other sources of inflation and stay with that, there's plenty of other sources of inflation outside of the Bank of England's control. And they've been very clear about that, that there's a lot that they cannot control, but they have been very clear about the target and that 2% target hangs over their head. Do you think they might settle for a target above 2% if they really can't bring that number down?

Speaker 0:
So, you know, there's something extraordinarily um

Speaker 0:
kind of confused about the Bank of England's approach. On the one hand, it admits that these are global commodity market prices that are causing inflation.

Speaker 0:
And if that's beyond their control, I mean, they could control it we could have more regulation of those commodity markets. Um, in 2001, the Clinton administration deregulated international global commodity markets. So, um, but the Bank of England doesn't choose to regulate commodity markets instead, it, it is a victim of them.

Speaker 0:
And then on the other hand, it talks about a 2% target here at home and it attacks wages and it blames inflation on wages. So, you know, it's got to decide what is the problem. And I think it's very unclear and it's very confused. I don't think that the governor of the Bank of England really understands what's going on.

Speaker 0:
And do you think? And something you mentioned this in an interview before that the idea of a target is maybe a bit outdated or do you think it's good to have that benchmark that you can position against because it's a relatively new phenomenon, right? The targeting it started in the nineties. So what do you think?

Speaker 0:
I think it's totally arbitrary really. And the point about about it is this, the Bank of England is mainly concerned about the interests of creditors, banks and other lenders, right?

Speaker 0:
There are far fewer creditors in the economy than there are debtors and the Bank of England seems to not care at all about the situation of the debtors. You know, there's thousands of mortgage holders who are now paying five or going to pay five or 6% on their mortgages. The bank of England cares not about them and their problems and their impact on the economy as a whole.

Speaker 0:
Instead it focuses entirely on the interests of creditors and that's an imbalance that we have to correct. That's not fair. It's not democratic if you like because you know, most of us are debtors, very few of us are creditors. Um So the Bank of England, yeah, has got that wrong and having it a very arbitrary target, which is just a number plucked out of thin air when sometimes actually inflation might be a good thing, it might be a necessary thing.

Speaker 0:
Um And uh it might be and I mean, I think when we have very high levels of debt where companies during the pandemic borrowed crazy amounts of money at very low rates of interest in a built up. There's great overhang of debt which won't be repaid. You know, inflation might be a useful thing there in in balancing that uh creditors won't like it.

Speaker 0:
But you know, the choice will be, do we upset creditors or do we bankrupt corporations? And so, you know, I think setting a target is crazy really. It's the overall economic conditions and the impact on the overall economy that matters.

Speaker 0:
And that's it for this installment of Asset T V's viewpoint. Thanks to all my guests for your balance insights on such a nuanced topic. Thank you for watching. We hope to see you again next time.