Gordon Brown and the Bank of England governor Mervyn King, seem to be blaming each other for the UK’s economic ills. First Mr King said it was all down to tax hikes, and that the UK is struggling because we are all paying too much tax. Then yesterday, the UK’s Prime Minister-in-waiting told a select committee of MPs that interest rises were to blame. He said, “If interest rates rise four times, it’s bound to have an effect on consumer demand and bound to have an effect on the housing market. I don’t think anyone would doubt that four interest rate rises were bound to be the major factor.”
Mr Brown said that he was sure that Mr King, on reflection, would agree with him.
For much of last year and the beginning of this, the Bank of England insisted that the rise in consumer borrowing was not something to be feared, that it was not behind the erstwhile consumer boom. Borrowers, it was argued, were putting their money into assets.
That has always seemed to be a fairly optimistic belief. Many people who topped up their mortgages spent the proceeds on a jolly in the Costa Del Sol, or some other short term gain, and that high level of borrowing did fuel consumer spending. Surely that is the single biggest reason why consumers have since slowed down.
Remember Nigel Lawson missed the Lawson boom, even though it was happening right under his nose. The Bank of England and Gordon Brown seem to want to blame all problems on anything but the high level of consumer indebtedness.
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