Hard times at Bank of England amid strike threat and rate rise talk

London Briefing: August could be cruellest month with walkout at Threadneedle Street

August is traditionally the quietest time of the year in the City, but the first week of next month promises to be pretty lively, particularly for the Bank of England.

The central bank is facing the first ever strike at its Threadneedle Street headquarters, with members of the Unite union scheduled to walk out for four days, from July 31st to August 3rd, in a dispute over pay.

The union has threatened to render Threadneedle Street "effectively inoperable" as maintenance and security workers take action, along with staff that serve the suite of executive offices at the bank, known as "parlours". These include the office of governor Mark Carney.

While the bank insists it can cope with a walkout, the timing could hardly be worse. The monetary policy committee is due to meet that week, and will announce its decision on interest rates at noon on Thursday, August 3rd, alongside the publication of the latest quarterly inflation report.


Next month’s meeting comes amid a marked split among the bank’s rate-setters, many of whom have been out in force in recent days to hammer home their opposing views following the purdah imposed on them in the run-up to the general election.

Last week, it was Carney who rowed back somewhat on his previous “no change” stance by setting out the circumstances under which he would cast his vote for a rate rise.

Consumption growth

While cautioning that it was still too early to make that call, the governor said his decision would depend on a number of factors. These included the extent to which weaker consumption growth was offset by higher business investment, wage growth and how the economy copes with the reality of Brexit negotiations. His change of tone came as a surprise in the City – just a week earlier, in a speech at the Mansion House, Carney had stuck to his guns that now was not the time for a rate rise.

Three more committee members weighed in on Tuesday – hawks Ian McCafferty and Michael Saunders, both of whom voted for a rise last month, and Gertjan Vlieghe, who is regarded as an arch dove.

For McCafferty, an immediate rise is required to combat rising inflation. The move is justified, he says, because the economy has held up better than expected in the year since the Brexit referendum, views that were echoed by fellow committee member Michael Saunders.

Vlieghe, on the other hand, insists that pushing up rates too soon will do far more harm than leaving them on hold for too long.

Andrew Goodwin at Oxford Economics ruled it a "score draw" for the MPC's doves and hawks and believes that while the committee will remain split in August – the vote was 5-3 against a move in June – the majority will continue to say rates should be left at their historic low of 0.25 per cent for now.

Meanwhile the pay row at the bank highlights the deepening cost of living crisis, as household income is squeezed by rising inflation and the Brexit-fuelled increase in prices because of the fall in the value of the pound.

Bank employees have been angered by the imposition of a 1 per cent increase in the pay pot for the year and the fact that the amount individuals receive is at the discretion of line managers. This they say could result in some staff receiving less than 1 per cent or no increase at all.

Unrewarded savers

It’s 10 years to the day – July 5th, 2007 – that the MPC last raised UK interest rates, taking them to 5.75 per cent just as the financial world was about to fall off a cliff.

Investment management firm Hargreaves Lansdown has crunched the numbers for the past 10 years to reveal some fascinating – and alarming – findings.

The severe impact of ultra-low interest rates on savers is starkly demonstrated by the fact that almost £180 billion of savings is languishing in non-interest bearing accounts, a near-eightfold rise on 10 years ago.

Hargreaves analysts calculate that £1,000 of cash in the bank back then is now worth just £878 after accounting for inflation. Invested in the stock market, however, its value would have risen to £1,323.

They reckon that eight million Britons have never seen an interest rate rise in their adult life and that consumer debt, at £199 billion, is even higher than it was on the eve of the crisis, when it stood at £191 billion.

As Hargreaves Lansdown points out, weaning Britons off cheap money will not be an easy process. Fiona Walsh is business editor of theguardian.com