Does it matter if Mervyn King starts getting outvoted on the MPC?

Just a quick one to point out Roger Bootle’s article in this morning’s Telegraph. He wonders whether the MPC will lose credibility if the Governor is consistently on the wrong side of the interest rate vote. It’s only happened twice so far (most recently at the start of this month when he was in the minority calling for a hike), but Bootle thinks that his position becomes untenable if it becomes a common event. The other thing that Bootle comments on is the strength of money supply growth – he points out that the money supply plays no role in the Bank’s economic forecast models. However, we perhaps shouldn’t be too surprised about this given the breakdown in the relationship between money growth and inflation in the past couple of decades. As you probably know the relationship broke down shortly after the politicians and central bankers started targeting it (some might call this Sod’s Law, but we economists call it Goodhart’s Law after the former Bank of England adviser who noted this phenomenon).

The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.

Jim Leaviss

Blast from the Past logo Blast from the Past logo

16 years of comment

Discover historical blogs from our extensive archive with our Blast from the past feature. View the most popular blogs posted this month - 5, 10 or 15 years ago!

Next Blogs