Friday, 9 October 2015


“What I like doing best is Nothing."

"How do you do Nothing," asked Pooh after he had wondered for a long time.

"Well, it's when people call out at you just as you're going off to do it, 'What are you going to do, Christopher Robin?' and you say, 'Oh, Nothing,' and then you go and do it.
(A A Milne, The House at Pooh Corner, Ch.X, 1928)

How much does it cost to do nothing? For the last 79 months the Monetary Policy Committee has met and decided to keep the Bank Rate where it was, no change, at 0.5%. It last cut the rate – from 1% to 0.5% – at its March 2009 meeting. In its 79 subsequent meetings, the latest on Thursday, the nine members have decided by an overwhelming majority to keep the interest rate lever stuck on its lowest 0.5% notch.

The Bank Rate cuts from 5% in April 2008 leading up to that final March 2009 decision were attempts to stimulate an economy in dire straits after the 2008 world banking crisis. Until then Bank Rate was the Monetary Policy Committee’s only lever. It controlled inflation by raising or lowering Bank Rate to stimulate or rein back borrowing and therefore growth in the economy.

But when it cut rates to 0.5% in March 2009 the MPC realised it need another way to control the economy. So it had a second lever fitted. It was called Quantitative Easing or QE (technically the Asset Purchase Programme). That meant magicking up money out of thin air in and using it to buy back Government bonds from businesses and pension funds. As the interest rate lever hit its bottom notch of 0.5% the new QE lever was pushed up to its first notch of £50 billion in the hope that this would stimulate growth by pumping money into the economy.

Over the next three years more and more money was magicked out of nowhere until in July 2012 the final £50bn was pumped in making the grand QE total of £375bn created out of nothing and passed on to business. The magic money tree was in full bloom. I did suggest at the time that the MPC renamed itself the MoneyTree Policy Committee. It didn’t.

That decision in July 2012 was the last occasion the MPC actually decided to change anything. Since then inflation has consistently missed its target of 2%. Currently it is 0% and the Bank’s regular forecasts that in two years’ time it will be back on its 2% target look more and more laughable every time one is made.

This Thursday 8th October the MPC voted to “maintain Bank Rate at 0.5% and the size of the Asset Purchase Programme at £375 billion”. The same decision it has taken every month for 39 months. For more than three years both levers have been stuck.

The MPC has nine members. Five are grand employees of the Bank of England from the Governor down. Four are independent members who serve for three years, though occasionally they are reappointed. The independent members are paid £135,751 a year for work the Bank describes as on “a part-time basis”. At the end of their term they are restricted in what they can do for three months and paid for that time too. So in effect they are paid 13/12ths of their annual pay or £147,063 a year for each of their three year’s work.

There are four of them and for the last 39 months they spent their (part) time on visits round the country, meeting at the bank for three and a half days, discussed the economy. And then taken that important decision on how to maintain price stability and support the Government’s economic policies for jobs and growth. And for 39 months they have voted to do nothing. To leave both levers where they are. The cost of the four of them for that period at today’s rate (it hasn’t changed much) is £1.9 million.

This blogpost was first published in the Money Box newsletter 9 October 2015. Get the newsletter every week by subscribing here.