On a recent family visit to London, I took my kids to the Bank of England Museum in the City. Like Edinburgh’s similar Museum on the Mound, the free museum provides an insight into the often arcane machinery of finance through the ages.
The Bank of England’s Museum, in particular, aims to provide the public with an insight into its history and its role as the UK's central bank. There are displays of bank notes, faded bonds from yesteryear, illustrative histories of the Bank and its buildings, Roman gold, ancient coins, and a solid 13 kilo gold bar in a perspex case which you can hold in your hands - my kids had great fun straining to lift it.
However, it’s the Bank’s display about inflation that I was most drawn to given Britain’s current raging inflation problem.
On arriving at the Old Lady of Threadneedle Street (as the Bank is fondly known), you pass through a colossal, vaulted entrance door and then, after a security check, come upon a small boat in the main exhibition space. This sets the scene for a plethora of nautical metaphors about how the bank steers the UK economy through rough and smooth economic waters by keeping inflation “steady and low”.
“Keeping on an even keel…The role of the bank of England” it says across the boat’s bridge with display boards explaining why it is so important that Britain’s central bank targets a 2% inflation rate to maintain monetary and financial stability.
Hands-on games help to illustrate how difficult maintaining this 2% target is. In one game, you have to trim and open up the mainsail of monetary stimulus on a yacht at sea to target 2% inflation.
Another game involves balancing a steel ball in the middle of a horizontal tube by lowering and raising a small lever. The sweet spot in the middle, the pivot point, is marked 2% but as you adjust the Bank rate (aka “base rate”) lever up or down, the ball in the tube can quickly roll away from you until it hits one of the buffers at either end of the tube, marked -8% or 10% inflation. At this point a light flashes up to say you are experiencing an “economic shock!”.
That’s where Britain is now: hitting the buffer of high inflation. In fact, inflation in pound sterling topped 10% in July and Governor of the Bank of England Andrew Bailey has said that he expects it to peak at just under 11% this month. Maybe the Museum should install a longer tube, one that goes - in true Spinal Tap fashion - to eleven?
— Bank of England (@bankofengland) September 26, 2022
Joking aside, there are serious questions and concerns that many people have about the Bank of England’s recent actions: the Bank has begun to pull the base rate lever higher, but not pulled soon enough, allowing inflation to rip upwards. It feels like the pound has been on a never ending slide downwards against many currencies, but in particular the strong dollar.
That 13 kilogram bar of gold, worth £458,000 at the beginning of 2019, is now worth £687,000 (gold is 50% more expensive).
To be fair, the Bank is contending with some hare-brained government actions - last week the Bank had to ride to the rescue after Chancellor Kwasi Kwarteng’s mini-budget, in which he promised sweeping tax cuts, in particular, for society’s wealthiest, causing the pound's value to fall off a cliff (it has come back from the brink, thanks to the Bank's actions). There is also the inflationary impact of the war in Ukraine and the reverberating economic weakness caused by Covid-19 and Brexit.
Central banks around the world - not just the Bank of England - have a poor recent track record of tackling inflation. But the US Federal Reserve has acted decisively in raising rates higher to bring inflation down, with Fed chair Jerome Powell reiterating the importance of maintaining price stability. In contrast, the Bank of England has been seen to lag, just last month, surprising the market with 0.5% rise in the Bank rate instead of the anticipated 0.75%.
The Bank was also forced to move from quantitative tightening (selling gilts/bonds) to quantitative easing (buying bonds) again to lower interest rates as part of its emergency action last week.
Not by total coincidence, in the week that the British pound fell to a record low against the US dollar, a touch above parity ($1.0349), building societies and credit unions launched their inaugural UK Savings Week. Banks, building societies, and national savings are passing on the recent rises in interest rates slowly, but after years of historically low rates, saving is still a far from an enticing prospect. Negative 8-9% real returns, anyone?
The Bank of England says the return to QE is temporary, that it will tighten monetary conditions to fight inflation, that interest rates will keep going up to bring inflation down to 2%, but there are many lingering questions.
Which brings me to the reason for this article: the Bank of England is coming to Edinburgh. The Scottish capital is one of several locations where the Bank will be holding its in-person Citizens’ Forum.
The event will give people a chance to share and discuss their thoughts and concerns.
The Bank website says: “What we do affects everyone, so we’ve set up the citizens’ forum so we can listen directly to you. We want to hear what you have to say about jobs, pay and the cost of living. And we’d like to know about your experiences of the housing market and how easy you find it to borrow and save money. Taking part means you can put your views directly to people who make decisions that affect you. Our citizens’ forum members help us to understand how major events, such as Covid, affect people financially.“
The panel takes place on Tuesday 11 October at 5pm, but you need to register by Tuesday 4th October. The venue is not disclosed.
The website says:
“Anyone over the age of 16 can take part. We want our panel events to be as representative as possible. If events are oversubscribed, we’ll select a diverse range of people from all applicants.”
In the meantime, if that’s not your kind of thing, consider a visit to the Museum on the Mound in Edinburgh to brush up on your financial acumen and a history of banking with a distinctly Scottish flavour.
Among other things, you can try your hand at breaking into a safe, and see what £1 million in cash looks like. But go soon, inflation is making that cash pile less impressive at an alarming speed.