ON WEDNESDAY the Adam Smith Institute admonished the Bank of England as ‘worse than useless’, and warned: ‘There is already a major crisis in Italy and mounting concerns about Deutsche Bank, the biggest bank in Europe and recently described by the International Monetary Fund as the most systemically dangerous bank in the world.’
It added: ‘As the EU banking system goes into a renewed crisis, the UK banking system is in no fit state to withstand the storm. Once contagion spreads from Italy to Germany and then to the UK, we will have a new banking crisis but on a much grander scale than ’07-’08. The Bank of England is asleep at the wheel again, and we will be back to beleaguered bankers begging for bailouts – and the taxpayer will be ripped off yet again, but bigger this time.’
Yesterday, the Bank of England governor, Carney, announced a number of stimulus measures to give the appearance or the impression that something was being done to keep the sinking ship that is UK capitalism afloat. The Bank announced more quantitative easing, increasing it by £60bn to £435bn to allow the banks to buy £60bn more of UK government bonds and £10bn of corporate bonds to try to stimulate the UK economy.
It had to do something, since it also announced the biggest cut to its own growth forecasts since it started making them in 1983. The bank was forced to acknowledge the serious decline of the UK economy by reducing its growth prediction for 2017 from 2.3% to 0.8%.
Its decision to further cut interest rates to 0.25% was approved unanimously by the nine members of the Monetary Policy Committee (MPC) and is the first change in interest rates since March 2009. This will make importing more expensive, but slightly boost exports.
However, the MPC split over the £60bn increase in quantitative easing to £435bn. This was approved by a vote of 6-3, with Kristin Forbes, Ian McCafferty and Martin Weale preferring to wait and see rather than rely on subjective bank surveys. The corporate bond buying scheme was opposed by one member: Kristin Forbes.
As part of the package of measures designed to boost the economy, the Bank is also introducing a new Term Funding Scheme, which will lend directly to banks at rates close to the new 0.25% base rate to try to encourage them to pass on the lower interest rates to businesses and households, something that they are highly unlikely to do. Carney predicted that the amount of money lent through the scheme could reach about £100bn.
The corporate bond-buying scheme is to purchase up to £10bn of bonds issued by companies outside the financial sector. Only companies considered to be contributing to the UK economy will be eligible. More details of the scheme will be released in September.
The central bank is predicting that inflation would rise above its 2% target as a result of the falling value of the pound. The pound fell by 1% against the dollar immediately following the Bank’s announcement. The Bank of England also warned that there will be ‘little growth in GDP in the second half of the year’ although the forecast for 2016 growth has been hopefully left unchanged at 2% as a result of stronger-than-expected growth in the first half.
Another bombshell was its prediction that the unemployment rate would rise to 5.4% next year and 5.6% in 2018. The MPC meeting was the last one before it moves to only meeting eight times a year, meaning that it is not scheduled to meet again until 3 November.
However the expectation is that it will have to meet well before November because of the rapidly deteriorating economic situation. In fact a majority of MPC members said they would support cutting interest rates again before the end of the year to their lowest possible level of ‘close to, but a little above, zero’.
There is no doubt about it. The only way to resolve the crisis of British capitalism is by the working class carrying out a socialist revolution to expropriate the bosses and bankers, and to bring in a socialist planned economy.
