BANK of England governor King’s report, on the immediate prospects for British capitalism has produced a run on the pound – so precarious is the position of British capitalism.
He detailed a continuing fall in production, rising unemployment and a recession, at the same time as price inflation accelerates, leading to a record government inflation figure of 5%, making for a ‘painful’ period ahead for tens of millions of working people.
The Inflation Report warned of a ‘difficult year’ as disposable income shrinks, and as house prices continue to fall with the economy shrinking into recession.
His declared policy is to hold wages down and do nothing else except, grit our teeth, bear the pain and in a few year’s time, the deflation of the world economy will reduce the inflation rate to below the 2% Bank of England target.
This is a fairy story if ever there was one, and there were immediate responses to the Governor’s report.
There were warning shrieks from the trade union leaders, that with food and energy price inflation rising at a 30% rate, there would inevitably be mass strike actions by millions of trade union members if the Bank of England, and the government, did not change their policies. The trade union leaders pleaded that they would not be able to stop such actions.
They called for windfall taxes on the fabulous profits of the oil and gas companies, and interest rate cuts, so as to give production a boost and of course inflation with it.
There was also a shot across the bows of the bank from the capitalists and the speculators.
Governor King in his report said that he expected the rise in inflation would be temporary but the UK economy would go through a ‘difficult and painful adjustment’ until the rate fell back toward the government’s target of 2% in two years.
This was taken to mean no future rate rises.
This refusal to raise interest rates, amid the record British levels of indebtedness left speculators with little reason to hold Sterling.
The result was the biggest sell off and run on the pound in 12 years, a run which will in itself increase inflationary pressures.
The pound dropped by 1.8% on its trade-weighted index, which measures it against a basket of other currencies, to 90.8 points – the lowest level since December 1996. In one of its biggest ever falls against the dollar, it dropped 3.6 cents to $1.8651. It also weakened significantly against the euro, dropping more than 1p to 79.71p, and it is still falling.
The governor amid this situation of anticipating deflation, urged a stamping out of ‘risky’ mortgages, and that the government must not prevent tens of thousands having their homes repossessed by ‘taking on the risk for individual borrowers’.
King’s report stated: ‘It would be very dangerous to move to a situation where the government saw its major role as guaranteeing lending. Why should the taxpayer take on the risk for borrowing by individual borrowers, some of whom are risky? It’s the lenders who should take the risk and assess for themselves the riskiness of that lending.’
The policy remains the bankers must be bailed out at the cost of billions, and mortgage holders be allowed to go to the wall.
Meanwhile on Wednesday, figures showed a 60,000 rise in the number of people unemployed in the UK to 1.67 million and that the 15 economies of the eurozone shrank by 0.2% between April and June. The recession is deepening.
The bankers and the government doing nothing while millions of workers are being ruined, is the policy of the BofE and the Labour government.
The trade unions must bring forward policies to defend the interest of their members. There must be cost of living increases that match the real inflation rate as drawn up by the unions, and monthly increases to match rises in the real rate of inflation.
No repossessions of workers’ homes. Banks that repossess must be nationalised.
No sackings, but work sharing with no loss of pay. Employers who say no, must be nationalised.
The trade unions must bring down the Brown government to go forward to a workers government and socialism.
