Bank of England chief steps up attack on Theresa May’s claim that low interest rates hit poorest

Berlin summit: Theresa May and Spain’s prime minister Mariano Rajoy today
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A Bank of England chief today ripped apart Theresa May’s claim that low interest rates have hit the less well-off.

Deputy Governor Ben Broadbent delivered an in-depth analysis which flatly rejected the Prime Minister’s argument that monetary policy had impacted on households without assets. Governor Mark Carney told MPs earlier this week that people blaming low interest rates from central banks for spreading inequality were engaged in a “massive deflection exercise”.

Mr Broadbent stepped up this criticism today by devoting a large section of an 18-page speech to slapping down the argument.

In her keynote speech to the Tory annual rally in Birmingham last month, Mrs May stated that monetary policy, with “super-low” interest rates and quantitative easing, had provided the necessary “emergency medicine” after the financial crash. But she added: “We have to acknowledge there have been some bad side effects.

“People with assets have got richer. People without them have suffered. People with mortgages have found their debts cheaper. People with savings have found themselves poorer.”

But in his speech to economists in central London, Mr Broadbent delivered a detailed rejection of this view.

“I doubt that any independent decision of monetary authorities, the MPC (Monetary Policy Committee) included, has that much bearing on the behaviour of real asset prices over long periods of time, or any distributional consequences that follow.

“And the only reason for raising these issues, therefore, is the apparent concern that the opposite is true — that looser monetary policy, unconventional policy in particular, is having material and lasting effects on the distributions of income and wealth. I don’t think the evidence gives much support to that view.”

He stressed that conventional measures of income inequality in the UK had been “broadly stable” over the past quarter century, “precisely the period” over which real interest rates had been declining. He added that asset income, mostly through private pensions, goes mostly to the better off. “But the bulk of household income, and therefore the bulk of its variation, comes from wages. And there’s no reason to think the distribution of labour income specifically should be affected by the long-term level of real interest rates.”

Other politicians have voiced similar concerns to Mrs May, including former Chancellor George Osborne who said: “We need to offset the very necessary loose monetary policy and the distributional consequences that it is having. Essentially it makes the rich richer and makes life difficult for ordinary savers.”

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