After retail sales rose strongly in July, did the Bank of England jump the gun by cutting interest rates?

Inflation Continues To Slow For The Third Month But Fails To Hit 2% Target
Shoppers shrugged off Brexit gloom in July (Source: Getty)

Tim Price, manager of the VT Price Value Portfolio, says Yes.

Brexit hasn’t even happened yet, but Bank of England governor Mark Carney went out on such a limb on behalf of Project Fear that he had no alternative but to cut interest rates, irrespective of our economic condition and the already sharp decline in sterling. There is now a growing chorus of dissent over the practical value of quantitative easing (QE) and the rapid approach of zero – perhaps even negative – interest rates. The outlook for savers, investors, pensioners, banks and pension funds is disastrous. When interest rates sink to zero and threaten to go below it, savers rightfully question the sanctity and value of bank deposits. This threatens a bank run. If, like me, you believe that the Bank of England is now acting outside its mandate and risking the stability of the very financial system it is supposed to be protecting, please support my petition calling for an end to QE.

Vicky Pryce, board member of the Centre for Economics and Business Research and a former joint head of the Government Economic Service, says No.

Trying to forestall a drop in confidence and a severe slowdown in the economy after the Brexit vote were behind the Bank of England’s cut in interest rates. It takes time for measures to have an impact and the Bank was right to act when it did. The main worries are not just over the short term but also over the medium term. The Bank’s forecasts, which incorporated the latest policy steps, showed growth in 2016 marginally lower but a sharp downgrade for 2017. Household spending, which has been the main driver of economic growth, is expected to be negatively affected by rising inflation and increased unemployment and rise by just 1 per cent next year and 0.8 per cent in 2018. We must thank the better weather in July for the month’s strong retail figures, alongside the weak pound encouraging overseas visitors to spend more. Falling shop prices also helped. But if retail sales stay ahead of expectations, it will be because of the Bank’s actions rather than despite them.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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