With apologies for stating the bleedin‘ obvious, but most of us work to pay bills and no small part of these are accounted for by our mortgage. Consequently, for those who, on having thankfully made their last payment and received the deeds to a home far more valuable than when they bought it, the need to work is much reduced.
So, while we can so easily blame bleedin‘ generous benefits for many Britons leaving the world of work – thereby tightening the labour market, causing supply disruptions and thus fuelling inflation and a panicked base rate response – 14 years of Zero Interest Rate Policy (ZIRP) played a very generous part.
“On top of affording all the more to live mortgage-free and so free of work, ultra-low borrowing costs allowed many to significantly pay-down their mortgage and/or become first-time landlords”
The simple arithmetic is that the response to Covid of slashing the base rate from 0.75% to 0.1% alongside HUGE fiscal injections, produced the largest sudden aggregate wealth effect in UK history. So much so that, while c7m private homes in England were unlevered in ’08, and 8.3m in ‘19, now it is c9.4m (resi-prices up 75%). On top of affording all the more to live mortgage-free and so free of work, ultra-low borrowing costs allowed many to significantly pay-down their mortgage and/or become first-time landlords; some, in fact, earning enough to down their work-tools. Indeed, since ’08, close to 750k entered the landlord class.
Remember, too, that the pronounced multi-year decline in the inactivity of Britons was concealed by significant worker immigration; c12m NI numbers issued to such arrivals since ’02. Indeed, many of these became tenants to Brits who had become landlords, much preferring this to being salaried and having to traipse to and toil at work.
Now, we know that upwards of 750k EU nationals left the UK in early ’20. These departures had nowt to do with Brexit, but rather the soft closure of workplaces. Thanks to having settlement status in the UK, there should be little doubt they are fast returning, drawn by rising wages and worsening economics at home.
So, then, alongside numerous other negative economic externalities brought about by the MPC’s poor management, we can add to its rap sheet being bleedin‘ late to normalise the base rate. In fact, of the many who enjoyed a paid ‘year off work’, more than a few have decided not to return to the grind, but live off ‘winnings’ from state-funded generosity, viz furlough, ‘bounce back’ loans, etc, windfalls added to by the MPC. As to the question of when the base rate should have begun to rise, my answer is ’14, acting to tighten then allowing for a welcome loosening in fiscal policy. As for the cut after the referendum, that was plain dumb. And though it was correct to cut the base rate on entering lockdown, it should have been raised the moment we were freed to spend.
Given there seems to be no end to the BoE’s bleedin‘ failures, can it possibly redeem itself? Well, the MPC needs an injection of new wiser blood; the arrival of those who signal a 4% base rate is normal and indeed welcome for an economy whose health has long not needed monetary life support. Indeed, the MPC needs to make clear their 1-3% inflation target has, for a variety of reasons – including ESG targets – become untenable. Make clear that if not lifted to 1.5-4.0%, the base rate will be over-tightened.
