Happy Birthday Monetary Policy Committee (MPC)

08th May 2012

Sunday marked the 15th Anniversary of the Bank of England being given responsibility for setting interest rates, instead of the government.

The prime objective of the Bank is to set interest rates to meet a government-set inflation target and separate the job from any political agenda. But after 15 years - is this really working?

Inflation has been well over the target for three years now and looks likely to stay there for quite some time.

The Bank is keeping the base rate low, which is supposed to benefit businesses who want to borrow in order to grow, along with assisting houseowners who should in turn pay less for their mortgages and so have more to spend, creating demand in the economy. But in truth, small businesses are finding it difficult to borrow at any price, and the last couple of weeks have highlighted that mortgage rates are in fact on the up!

And through all of this, interest rates being paid to savers remain at a derisory level. This discourages people from putting money aside and means that those living on their savings have less income to spend, which must surely be bad for the economy.

Savers, especially those no longer working often have a difficult decision to make; either cut down on their expenditure, including every day essentials such as food and heating, or dip into their savings to maintain their standard of living. But how long can that last?

So if current policy isn’t helping business, is seeing mortgaged homeowners starting to suffer and is positively damaging to savers, isn’t it time to think again?

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