Ann Pettifor

The Bank of England has lost control

7th November 2008

Yesterday’s dramatic Bank of England 1.5% rate cut was an extraordinary admission of analytical failure. The Monetary Policy Committee of orthodox economists (with Danny Blanchflower the honourable exception) is well behind the curve. While it is tiresome to beat one’s own drum, I am obliged to point out that on the 12th July I wrote a short piece for the Guardian beseeching the Bank of England not to “sacrifice the economy on the cross of inflation targeting”. Today’s numbers from the Insolvency Service reveal that more than 4,000 companies have been sacrificed.  Company insolvencies have risen by 26.3% over a year ago, and by 10% over the last quarter. This represents the loss of a great deal of productive activity, and of thousands of jobs.

I do not have an army of economists undertaking research for me. Nor do I have the ample resources enjoyed by the Bank of England and the Treasury. And yet common sense, a cursory review of the direction of commodity prices, as well as a refusal to play the game of baiting workers demanding pay rises with threats of non-existent inflation – made the progress of prices perfectly clear.  Inflation rises in the Spring were not caused by wage demands, but instead by a spike in internationally-fixed commodity prices. The coming financial meltdown was soon going to dampen demand for oil and other commodities, and force those prices down again. In the meantime high oil and commodity prices were exacerbated by high real rates of interest. The combination was threatening the solvency of companies, households and individuals.That much was obvious to me. Why was it not obvious to the Bank of England and the Treasury?

But perhaps the most disturbing aspect of yesterday’s rate cut was the fact that it may not have any real impact on other rates within the economy. Private and nationalised banks are cocking a snoop at both the Bank of England and the Treasury, and both appear impotent. This is worrying. When governments appear to lose control over the economy, people look elsewhere for leaders that will exercise some control over the economic forces that impact so detrimentally on their lives and livelihoods.

The Bank of England and the Treasury’s ideological fixations and fetishes continue to worsen this crisis. Is yesterday’s dramatic rate cut a sign that Old Lady of Threadneedle St. might be catching up?  For the sake of us all, I sincerely hope so. But I fear it may be too late.


4 thoughts on “The Bank of England has lost control”

  1. It seems astonishing but the government still shows absolutely no grasp of the situation. The government should stop talking about regulation and

    start regulating: actions speaks louder than words. Stop treating the free market financiers like they’re the experts – look at the mess they’ve


  2. I reckon the 1.5% cut is a sign of panic at the highest levels. There is no incentive to save with

    interest rates at -2%. What’s more is that you get taxed on the 5% you earn.

    I’m glad I left the UK last year but there’s really nowhere

    in the world to hide from this recession!

    A saver.

    The creation of Money to make up some of the shortfall and manage the decline

    was referred to by Evan Davis in a Today programme interview 19-11-08 with Clegg of the LibDems. The UK was a major source of money supply –

    without rapid action this will decline – but there is much in UK to invest in – first we need insulation and reduction in Gas wastage.


    immediately moved on to privately created money. This is not good, since most of the bank HQs are in London or NY and the money repaid would be

    double the rate that could instead go back to the BofE for re-investment purposes. WE NEED TO GET TO WORK! Neither of them brought the

    conversation back to publicly created money except to mention Local authorities and disregard them. Even if loans were created under an interest

    contract based on customers ability to pay, if is effectively free money it should attract a charge to the public purse, thereby reducing inflation

    as interest rates rise as well as providing funds for infrastructure, energy efficiency etc to manage the Transition. THIS IS THE MISSING BIT OF


    A free-for-all of local authority money would not be wise, but a time

    limited phase of that would be OK if the Government and bank of England fail to act. Better/best to have the comprehensive reforms as on

    If local authorities were enabled to create the money, how would this be done, as interest free loans? Instead it

    would be simpler to each have an allocation of publicly created Bank of England money (debt-free) or credit at no interest via local

    authorities/public banks, based on the ability of the householders in sufficiently well-paid employment to repay over a long period (say when

    incomes are above average incomes). A sliding scale could be applied to avoid people leaving work especially to achieve free funding, and people

    prepared to DIY could attract a 2/3 grant or loan.

    That gives a clear incentive for those in employment to spend say £10k – £20k – 30k on

    their homes for approved purposes – Eco extensions in conjunction with Eco walling/cladding. Over a 20-30 year period that’s about £20 p.w. –

    less than many spend on a night out. Building control or all those trained to do HIPs who are now out of work could manage the process – getting

    lots of walls insulated quickly, reducing gas waste. It would be for GLOBAL BENEFIT and DIRECT the much-talked-about CONSUMPTION FOR THE COMMON


    The quickest start-up of this job is SUPER-ECO INSULATION – 4 Times Better than the Building regulations would be worth going for –

    replace some of the contraction currently going on in the Building industry which – as we say on the previous ‘post’ was a major SOURCE OF MONEY

    SUPPLY VIA LOANS from the rump of earners who should be encouraged to borrow to insulate their houses EXTERNAL SUPER-INSULATION. Space-age

    technology inside traditional cladding. The complementary idea for local authorities and landlords is available for high-rise or commercial

    buildings and is pasted below.

    This would be be part of a Green New Deal – but it should ideally be global in combination with the Banking

    adjustment and the ET Return from trade to the producer nations for their climate change avoidance projects. Otherwise these practical

    installations by UK might have little effect by themselves.

    What do you all think?


    ***Fast-tracking Regeneration and Energy Conservation for High rise ***
    – Wider balconies and glazed finish to improve high and low-rise

    housing -Retaining thermal mass and embodied energy

    A general rise in well-being could now be possible for high-rise housing because of the

    possibility of affordably re-cladding and installing high performance wider balconies on existing blocks. These lift the general appearance of the

    area but at the same time provide easily accessible external living space – winter gardens – see cartoon. This is desirable not only

    because of the energy saved and reduction in future maintenance costs but also because the retention of the highest quality occupants improves the

    community. There would be considerable energy savings from no longer always needing to demolish and rebuild in order to regenerate. It would be a

    way of fast tracking regeneration. This is entirely necessary because of climate change, energy and food price rises and applies to the UK and

    across the world. Even in hot countries these simple changes would make natural air-conditioning and insulation possible, reducing both the cost

    of living and climate impact.

    Most occupants would then wish to stay and will therefore have more of an investment in their local

    environment encouraging them to take an interest in maintaining it. Even “problem tenants” would then have less of a free hand – improving the

    environment for everyone – easy access outside the building from a balcony encourages neighbourliness because of the side view. People would then

    get to know each other more, but also can observe any anti-social behaviour which will therefore decline. Less reliance on security cameras has

    benefits all round, particularly in reduced staff time monitoring CCTV (police and government should therefore be in favour, etc).

    Some of

    the “right to buy” money from purchases can then (ideally) assist in funding of capital investment/refurbishment in the more borderline cases for

    local authority areas. The value of the space created is therefore much greater than simply the cost of construction. This is a way of competing

    with those in favour of demolition – retaining existing thermal mass and embodied energy – “energy enveloping” can be much better promoted once a

    few of these improvements are made.

    On a typical block some ball-park figures can be arrived at – for example:
    The wider balcony might

    cost less than £15k per unit providing what is in effect an extra room. This also has a sheltering effect on the existing cladding as well as

    reducing energy leakage from existing insulation (which on many blocks has been found to be inadequate due to leakage around the material itself).

    Grants could be available for installation of further insulation which would then be easily installed and maintained, both inside and outside the

    “garden room” – out-door living space.

    How could this new balcony be funded? A £15 per week (pw) rent increase is much less than the

    increase normally felt under a total reconstruction/relocation package. (£5 pw of this would be offset from energy savings, but solar gain might

    average another £5 pw over the the spring and autumn quarters). This indicates a capitation sum of at least £7500 from the rent etc even at high

    interest rates. The longer life expectancy of the building would justify a similar contribution from the body responsible for external

    maintenance, leaving about £5000 needed from energy saving grants/EU subsidies etc (£400k out of a total cost of £1.6 m for an 80 unit block).

    Balco have offered to build a show unit (see attachments).

    Considering the final value of a retained and improved block of 80 units is at

    least £10 – 12 million, the gain to the community is immense justifying further investment by occupants – their own community. There would be less

    tenant disquiet if they had improved accomodation, therefore less demand on the resources of the landlord or management company.
    These figures

    are provided to suggest an ethical reason for further investigation of what could be an exciting new proposal to avoid wasteful demolition of the

    buildings and the long process of rebuilding. In some cases internal wall arrangements could be altered to provide variety in the various sizes of

    units. The existing communities could, by seizing the opportunity, become the eventual owners of high quality apartments in desirable areas at

    discounted prices – a new dimension in affordable housing. See Cartoon on and description above of how what should be

    generous-sized multi-storey conservatories stack up – feeding energy into the building and reducing future maintenance costs.


    Ian Greenwood DIRECT 0121 449 0278
    Greenwood Structures and STEERglobal Group July 2008

  4. Hi Anne

    Why are the simple mechanisms possible and outlined above stalled and apparently not being taken up by bodies such as NEF and Government as a way of short-circuiting existing cumbersome grant and loan systems?


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