THE demand for the Bank of England to increase interest rates at the next meeting of the Monetary Policy Committee (MPC) later this month is becoming overwhelming.
Increases in the interest rates drive up the cost of borrowing for everyone in the country from mortgages and loan repayments through to the cost of government debt.
Bringing down central bank interest rates has been a major weapon in the struggle by governments across the world to try to escape from a crushing inflationary spiral. On the surface, an increase in interest rates is the last thing the capitalist economies of the world need right now.
The UK has been particularly hit by the world crisis, accelerated by the US war on Iran and the disastrous inflationary increase in energy costs.
The UK economy is collapsing with unemployment increasing and industrial output ‘stagnating’. Businesses are closing and major car companies like Jaguar Land Rover are announcing thousands of job cuts at a time when the cost of living for workers is soaring.
An article by financial columnist Matthew Lynn in yesterday’s Sunday Telegraph observed: ‘You need a very large magnifying glass to find any signs of life in the British economy.’
Lynn went on to say that an increase in mortgage rates, along with higher borrowing costs from businesses as a consequence of the Bank increasing the interest rate, ‘will crush what little confidence remains. And it will make it very hard for Andy Burnham, the Prime Minister, to deliver on his promise to reduce the cost of living.’
Despite this apocalyptic warning of economic disaster, Lynn, along with Huw Pill, the Bank’s chief economist, is demanding just such an increase.
Lynn cites two reasons for the Bank to increase interest rates and crash the economy, namely that other major capitalist nations are pushing up their own interest rates, with even the American Federal Reserve Bank poised for an increase.
Lynn insists that British capitalism cannot be ‘left behind’ in this mad rush to make ‘money more expensive’ and that the working class will just have to live with an out-of-control inflationary spiral.
The second, and main reason according to Lynn, is that the UK economy is ‘uniquely exposed’ to the bond markets and the hedge funds and private finance companies who buy up government debt because ‘government spending is running out of control’, while the national debt has soared to over the £3 trillion mark, leaving the government paying higher interest than any of the other major developed economies.
The bond markets, dominated today by hedge funds and private financial institutions that rely on highly leveraged debt to buy up government bonds, gave Burnham a sharp lesson in September last year, after he claimed Britain should not be ‘in hock to the bond markets, and drove the interest on 30-year government bonds to a 27-year high.
Since becoming Prime Minister, Burnham has dropped this promise and now pledges to be ‘flexible’ towards the bond vigilantes, and their demands for bringing down the £3 trillion debt by slashing government spending on the welfare state. This is while inflation runs riot and British capitalism dives over the cliff of economic collapse and recession.
The working class will never allow itself to be driven into poverty. It will not permit all the gains of the past being destroyed by a Labour government under the thrall of a bankrupt capitalist system, and its financial predators.
Meanwhile, the TUC leaders have kept a shameful silence over the capitalist crisis that is erupting.
Workers must demand that at the annual conference of the TUC, starting on Sunday 13th September, those leaders who refuse to get off their knees and organise the strength of the trade unions by calling a general strike to bring down the Labour government and bring in a Workers Government must be sacked.
They must be replaced with a new leadership to organise the working class to take the power by advancing to a socialist planned economy. Join the lobby of the TUC on 13 September – join the WRP and Young Socialists to build up the leadership required for the victory of the British Socialist Revolution.