Personal Finance: How can they spend a day and a half on just a quarter point cut?
Saturday 10 October 1998
Aside from the jollier conversation that bounces around the table in the Sudbury Institute Club, and the excellent meal in which we indulge afterwards, I am unlikely to ever be invited to an MPC meeting. I think that is probably just as well.
How they can spend a day and a half arguing the finer points of economic theory, with just a quarter point cut resulting, beats me.
I suspect the phone lines have been hot between centres of government. I can just imagine the call from Washington. "Hi, is that you Ed? This is Al. Hey, how about helping me out some and bringing your bank base rate down. It sure as hell sends a signal to the rest of the world!"
"Well, Al, it isn't up to me alone, you know. There are eight of us that have to make this decision and some of the others are still hung up on inflation."
And you can be fairly certain that Gordon would have had a word or two to say about interest rate policy. The thought of entering the run-up towards the next election with high and rising unemployment and a falling tax take, demanding an even tougher approach to public spending, does not bear thinking about if you are a politician.
Actually, Roger Bootle, the leading economist who forecast the death of inflation, takes the rather pessimistic view that no amount of action will stop a bout of healthy deflation in the developed world. He points to the fact that history has always delivered falling prices after inflation- and boy have we had inflation in the past half century. But I do not share his pessimism. Even so, the market is sufficiently windy to deliver some fairly hair-raising swings: 200 points up, 200 points down - what is a poor investor to do? At our investment club meeting we discussed bonds, but yields have now fallen to the point where it is hard to become too enthused.
The trouble with buying even dated British gilts these days is that there is a built-in capital loss occasioned by the fact that they were all issued when yields were much higher. I detect some bottom-fishing out there in the equity market, but the game is far from over. but whether I am brave enough to start shovelling my pension fund money into the market is another thing. Still, timing is the hardest thing to get right in markets, which is why pound cost averaging is such a boon to the long-term saver. It might even be worth an article.
Brian Tora is the chairman of the Greig Middleton investment strategy committee
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