Back in the Soviet era, analysts would spend hours trying to read between the lines of the speeches and comments coming out of the Kremlin.
Was there a hint buried in this or that paragraph about nuclear policy and the path of the Cold War?
Today, economists do much the same thing with the noises coming out of the world’s central banks.
The men and women who run monetary policy and decide our interest rates tend to talk in convoluted sentences. But spend enough time analysing those words and this modern form of Kremlinology can pay dividends.
Today is one of those days, because if you read between the lines of the latest pronouncements from the Bank of England, it’s clear that we are reaching (or might have already reached) the peak for UK interest rates. About time too, you might say.
Alongside its interest rate decision today – another half percentage point increase which takes the cost of borrowing to 4% – the Bank introduced some subtle shifts in its language.
Words like “forcefully” have been removed from the part of the minutes talking about future rate increases. Future tenses have been replaced with conditional tenses.
We’ve never seen quite such a rapid rise of borrowing costs in this country – and note that while 4% might seem low in comparison to previous eras (it was in the double digits in much of the 1970s and 1980s) the impact on households is severe.
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Today’s mortgage holders are significantly more burdened with debt than their parents and grandparents.
And rates are, alongside inflation, higher energy costs, a diminishing workforce and the economic friction of Brexit, part of the explanation for why the economic outlook remains so lacklustre.
Significantly less miserable than last time
The Bank’s forecasts today are significantly less miserable than they were last time it looked at the economy, thanks in large part to the fact that wholesale…
