Rising interest rates not merely a global phenomenon

Sir Charles Bean, a former deputy governor at the Bank of England, admitted that rising interest rates are partly a result of British economic decisions.

Um i just want to talk at the beginning if i may about the interest rate decision and because i think that’s going to be something that so many of our viewers are going to be really concerned about and we had the comments of course from the governor of the bank of england warning us to expect a higher interest rate rise um next month what should we be bracing

Ourselves to say i think there’s actually been a bit of misreporting of what andrew said in washington uh yesterday because he was talking about um the interest rate decision relative to what they were expecting back in august when they did their last monetary policy report so he wasn’t saying interest rates are going to have to rise even more than we thought last

Week uh really he was just reflecting the fact that uh the pressures on interest rates have risen in the past couple months for reasons we all know uh what’s been happening in ukraine and the mini budget um and he was merely saying to his audience that they would they would need to be raising bank rates so i don’t think people should read anything from that into

Their mortgage rates or anything uh what is an issue for their mortgage rates is really what’s happening to market interest rates they’ve already moved up in anticipation of the bank’s future decisions and also reflecting the turmoil in bond markets which followed the mini budget the other week i mean you’re talking about the time on the markets following the mini

Budget i mean whenever i have government ministers you know here in the studio they they try and really talk about the global forces which you acknowledge too you know in ukraine and the energy prices but it is correct to say that a lot of this turmoil is directly caused by the government policy that we’ve seen uh yes i i frankly i think it’s disingenuous to say

It’s all a global phenomenon it’s not there is a global element if you look at the general level of interest rates they’ve risen by about three percentage points since the beginning of the year um three quarters of that two-thirds maybe is the world and what’s happening in the ukraine but the rest of it is a uk specific phenomenon and it’s particularly developed

Since the mini budget so it’s clearly driven by that in my view and basically we’ve we’ve moved from looking not too dissimilar from the us or germany as a a proposition to lend to to looking more like italy and greece right well that’s at all doesn’t it really um what did you make of the new chancellor’s comments uh yesterday do you think they would have gone some

Way to implicating the market well i i thought he set the right tone and importantly he recognized that there are some difficult decisions ahead he was going to have to make pretty quickly i have to say in the next couple of weeks on both taxes and spending and the important thing to realize is not simply just a case of uh changing the identity of the chancellor

Or praying for the office budget responsibilities report it’s actually the contents and how the numbers add up and even before the mini budget in the medium term there would have been a hole in the public finances of 30 billion or so to which the government layered on another 45 subsequently reduced to 43 billion now they’ve done a u-turn on little less than 20

Billion of that so there’s still 40 billion they’ve got to find from somewhere that’s very chunky so that’s why he’s right to say there’s some very difficult decisions and the crucial thing will be whatever is published in a couple of weeks time on october the 31st is coherent and that the market see there is a viable and plausible plan for making everything fit

Together i always feel and that you’re in these kind of political shows you end up throwing around numbers 40 billion and it’s quite hard to realize what the enormity of what we’re talking about i mean 40 billion pounds can you put it in any context kind of you know squeeze that we’d have to see to fill that gap okay well 40 billion is about uh two percent of annual

Production of uh the uk um i cut in income tax of one percentage point which is one of the things that was in the mini budget bringing that forward one year that costs about five billion so 40 billion is is quite a lot if you want to think about it in terms of uh government spending uh you’re getting on for uh five or six percent cuts in government spending and

It should be said uh obviously the government’s talking about you know efficiency savings and stuff like that the existing cash limits were set a year ago when inflation was expected to stay low uh pay increases in the public sector were expected to be two or three percent which is not sustainable now pay in the private sector is growing at about seven percent

Um so already there is a big squeeze in real terms on public spending and if you’re going to allow that has to mean real cuts you can’t find it from eliminating waste which will no doubt be the um the mantra but there would have to be serious decisions about things to uh to stop doing serious decisions including potentially about the nhs i was interested to read

Your comments about you know if you wanted to get the share of government spendings gdp down you have to be prepared say to move away from our own health service free at the point of delivery to one funded by social insurance uh yeah i hope that again slightly mischievous reporting this is part of a long interview with your economics correspondent ed conway i’ll

Just take it out with him uh well but but but the essence of the point that i was making is that actually the share of government spending in gdp hasn’t changed very much over 50 years but beneath the surface there’s some very big trends and in particular the share of health and spending on uh welfare has risen from about a quarter of that to half of that and that

Larger affects demographics we have an older population uh and we’ve also decided to pay them better pensions that’s going to continue in the future in the past that was accommodated by falling defense spending falling debt interest spending falling public capital investment all three of those elements are programmed to go in the other way now so it’s a challenge

Even to hold share of government spending constantly make cuts but to make cuts and the point that i wanted to stress is you have to decide actually we want to do things differently you can’t achieve these things simply by finding a billion here a billion there um i think we are in in terms of the um indicators the economy is pretty much flat lightning to slightly

Contracting looking forward i think it’s pretty inevitable that there will need to be a period of uh of contraction how big we don’t know but in some sense there needs to be because the labor market is very tight vacancies are still at a very high level and that reflects the fact that half a million people left the workforce as a result of the pandemic and if we

See a squeeze in public spending in the fiscal tightening could that make the recession more difficult longer well if you have a tighter fiscal position that tends to mean lower demand uh lower output but there’s an offset to that because the bank of england can then run a looser monetary policy so it’s the flip side what we saw with the mini budget so the mini

Budget was basically something that was going to expand email on but in order for the bank of england to meet its inflation target it had to offset the consequences of that by uh prospectively raising bank rate more so you can change the mix but the overall level of demand has to be consistent with the economy’s supply capacity um just finally we’ll have andrew

Griffith on the show a little later uh here’s one of the few people too have survived in the treasury under quasi quantum and also the new chancellor jeremy hunt what would you ask him what would you like to find out well i would like to find out what their plan is for essentially if you like making the numbers add up in the medium term so given that they want to

Have the ratio of debt to gdp falling four or five years out presumably uh what is the balance they’re going to strike between raising taxes or cutting government spending and if the latter uh how they were expecting to achieve it yeah that is the big question uh indeed thank you so much you’re very welcome a pleasure to have you on the program

Transcribed from video
Rising interest rates not merely a 'global phenomenon' By Sky News