‘Worst BoE boss ever’ takes huge interest rate gamble

Some even labelled him the worst BoE boss ever. Now we are going to find out if that’s really the case.

By failing to tighten the UK’s monetary policy in time, Bailey worsened today’s cost of living crisis and made everyone feel poorer.

For years, the BoE had recklessly lavished us with cheap money, through near-zero interest rates and virtual money printing, known as quantitative easing (QE).

It should have stopped throwing fire onto the inflationary bonfire last year, but carried on even as others (including me) warned of the dangers.

Bailey wasn’t the only offender. None have apologised.

US President Joe Biden and the US Federal Reserve were even more reckless with their fiscal and monetary blitz.

And look where it’s got us.

Central bankers have finally woken up to the threat inflation poses and have been hiking interest rates aggressively to stamp it out.

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The BoE has lifted base rates for eight successive meetings, from 0.1 percent in December to three percent today.

The Fed has been even more hawkish. Its funds rate now stands at four percent and chair Jerome Powell is still talking tough.

It will continue to hike rates even if it drives the US – and the rest of the world – into a brutal recession.

Central bankers got it wrong last year, by leaving monetary policy too loose for too long.

Stung by subsequent criticism, they are now going full throttle in the other direction and risk causing even more damage.

Yet Bailey seems to have woken up to the danger.

Most central bankers follows the Fed, which is understandable. It’s the big boy on the block. You can’t fight it.

But there are signs that Bailey may finally be standing up for himself – and the UK.

Markets have been calculating that base rates would hit at least 5.25 percent and possibly higher.

That would be a disaster for the economy and mortgage borrowers in particular.

Some would see their interest repayments rise by up to £1,000 a month.

They would be justified in blaming the BoE, given that years of dirt-cheap money forced buyers to stretch themselves to the max.

Yet last week Bailey stuck his neck out and said borrowing costs would peak at lower levels than markets expect.

That may sound like a throwaway comment, but central bankers can move markets with just a few words.

So Bailey is braver than he seemed.

It triggered another sell-off in the already vulnerable pound, as he must have expected (it’s now partially recovered).

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Bailey knows that Prime Minister Rishi Sunak and Chancellor Jeremy Hunt are set to suck money out of the economy, by slashing spending and hiking taxes to tackle the UK’s £50billion financial black hole.

The last thing we need is for the BoE to pile on the misery, too.

The UK still faces recession, but Bailey’s pivot reduces the risk of an all-out housing crash and financial depression to boot.

Whisper it, but he might just be making the correct call on inflation. Europe’s energy storage facilities are at full capacity ahead of winter.

China is finally shedding its Covid restrictions and looks set to flood the world with cheap imports again.

So prices could start falling without the BoE squeezing the life out of the economy.

Let’s hope I’m right and Bailey’s gamble pays off. We all desperately need the “BoE’s worst boss” to turn into a winner.

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