Socialist Worker

Bank of England’s desperate measures won’t stop turmoil

by Dave Sewell
Issue No. 2516

The Bank of England is throwing money at the City of London

The Bank of England is throwing money at the City of London (Pic: kloniwotski on Flickr)


The Bank of England (BoE) is fighting to avert a new recession by throwing billions of pounds at the City of London.

The bank’s governor Mark Carney announced a dramatic set of “stimulus” measures last Thursday—and warned that growth would be far slower than previously predicted.

He said, “We took these steps because the economic outlook has changed markedly”.

Most significantly the BoE cut the basic interest rate to a record low of 0.25 percent, which should make it cheaper for banks to lend money to businesses.

But banks are worried about their profit levels because capitalism remains mired in slump.

Bosses haven’t been able solve the problems of low profitability that caused the global crash.

So Carney promised to protect their profits with a £100 billion sweetener—the new “term funding scheme”.

To try and boost lending the BoE also announced £70 billion of quantitative easing (QE).

The BoE will create new money electronically and use it to buy “bonds” and “gilts” from companies and the government.

These are large IOUs with the promise of future repayment.

So banks and the government are effectively being handed cheap, long-term loans. Bosses cautiously welcomed the moves, but their effect will be limited.

Desperate

The Tories and Carney are desperate to boost investment.But bosses aren’t holding back on investment because borrowing is expensive.

They aren’t investing because profitability across the capitalist system remains low.

In 1992 the BoE had to slash the basic interest rate from 10 to 6 percent amid the turmoil that followed the “Black Wednesday” crisis.

Carney could only nudge it down slightly from the already record low of 0.5 percent—adopted in 2009 supposedly as a short term emergency measure.

No amount of free money can drag a system based on maximising profits out of a crisis of profitability.

But it could still boost commodity prices and fuel speculation—and even reverse the slowdown in London’s housing prices.

The Bank of Japan and the Reserve Bank of Australia announced similar moves last week.

Governments are under pressure to ease austerity and take advantage of low interest rates to fund investments.

It adds to expectations that new Tory chancellor Philip Hammond could do this in his Autumn Statement.

Unlike the Tories, Labour’s left wing leadership demands that investment and QE are used to benefit working class people.

But it will take a fight to make sure any move away from austerity is used to benefit the people it hurt, not those who pushed it.


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