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Inflation up. Growth down. Uncertainty everywhere

Stephanie Flanders | 14:34 UK time, Wednesday, 11 May 2011

You don't go to Inflation Report press conferences nowadays to get cheered up. The "news", if we can call it that, is that the Bank's Monetary Policy Committee (MPC) now thinks inflation will be significantly higher than they previously thought, not just in 2011 but in 2012. Indeed, if reality - by some freakish accident - follows the path suggested by the new forecast, the target measure of inflation will still be within shouting distance of 3% a year from now.

This won't come as a surprise to many, though the sharp rises in utility prices which underpin the new forecast will come as a shock to consumers who hoped the period of rising energy bills might soon be over.

The chart below (Chart 5.2, Chapter 5, page 39) shows the range of possibilities now for inflation in the second quarter of 2012 (in red) compared to the forecasts the Bank drew up in February (marked by the grey line). This shows clearly how the distribution has shifted, with a mid-point close to 3% instead of 2%.

Graph

As usual, every word the MPC or Mervyn King says on this subject comes laden with caveats and reminders of the uncertainty that surrounds them. But other things equal, the implication of this new forecast is that real wages will be further squeezed in 2012. Indeed, the Bank needs "other things to be equal" - needs nominal wages not to respond to this extra bout of inflation - for the rest of its forecast to be realised, and inflation to fall back to target by the middle of 2013.

A similar chart for GDP (page 41, if you're interested) shows the Bank has not made such large adjustments to its growth forecasts, though the picture is somewhat weaker than before.

There was much discussion in the press conference of what the governor was pleased to call the "soft patch" in the recovery: whether it would last, and what the long-term impact might be for the level of national output in a few years' time.

On this, the Bank is still on the more optimistic side of the spectrum; it thinks growth in the first quarter was probably stronger than the ONS figures suggest (yes, it's that construction output puzzle again), and that the recovery will probably get back on track over the next six months.

But, as I keep saying, what counts as an optimistic forecast these days is pretty anaemic by historical standards, and compared to the Bank's own forecast, only a year ago, of growth this year of nearly 3%. Also, though the path of the recovery from here might not be very different before, we will be starting from a lower base.

In that sense, the Bank is saying that the ground lost at the end of last year will not be quickly made up. To quote the report:

"The projection for growth implies a lower level of GDP than was judged probable in February. Given the observed weakness in productivity over recent quarters, the Committee judges that the outlook for productivity, and so for the supply capacity of the economy, is also weaker than in February."

Productivity has been unusually weak since the start of the recession, reflecting the fact that employment has held up even as output has gone down. The Bank thinks that part of the shortfall in productivity will never be regained - in other words, output per worker might be permanently lower as a result of this crisis, with, potentially, long-term consequences for national income as well. But the Bank does think that companies have some room to expand productivity and output at limited extra cost. That is what is known as spare capacity.

However, it's also possible that firms will try to regain their lost productivity another way, by simply laying off workers they have previously tried to keep on. Long-term, that might not be disastrous for national output (if the higher productivity ultimately generates higher demand) but it would have pretty undesirable short-term consequences for the labour market.

So much for the big picture on growth and inflation. The other thing that jumped out at me was the governor's comments on the relatively high cost of bank funding and how this was influencing monetary policy.

As this second chart shows, the marginal cost of money, if you are a bank, is much lower now than it was at the height of the crisis. But the gap between the rate banks pay and the official base rate is still high by historical standards.

It's no secret that this was a key factor behind the MPC's decision to cut the official interest rate so dramatically, and keep it at this low levelfor so long. But it was interesting to hear Mervyn King spell out that the future level of interest rates would be dependent, not just on the state of the economy but also on the state of the wholesale market for bank funding.

Graph

As he said, if the gap between the official Bank rate and the actual cost of funds for banks starts to narrow, that would suggest that the official interest rate would need to go up, merely to keep the stance of monetary stance unchanged. (If the Bank rate didn't go up, in those circumstances, that would mean policy had been loosened, assuming that banks pass on the fall in the cost of money to their customers or their shareholders.)

It's always been technically true that the market price banks pay for their money will affect the interest rate they offer to us - with consequences, in turn, for the way that the MPC thinks about the level of the Bank rate. But it's rare that the gap between these three should be so consequential for policy.

Comments

Page 1 of 2

  • Comment number 1.

  • Comment number 2.


    I thought the MPC determined BOE Base Rate and BOE Base rate was the tool the BOE used to keep inflation within the target zone of 2%?

    This is plainly not the case as illustrated above as base rate has been at 0.5 since Jan 09 and inflation has only spent 7 of the last 27 months below 2.2%

    What is the MPC and BOE for if not to carry out their statutory duty?

    This reality gap allows speculation and conspiracy to flourish. I am sure the reality is that the MPC act with fiduciary integrity but why is their performance so poor at controlling inflation?



  • Comment number 3.

    The Bank of England are a global disaster and a sick joke when it comes predicting and managing inflation which under the Bank of England Act is their only task. Yet again the inflation genie has slipped beyond their 2% grasp.

    The Bank comes up with totally spurious reasons whey it can't do what it is mandated and legislated to do. The ONLY task of the Bank is to manage inflation. They have failed. They should be sacked.

    Look, let me put this as simply as possible: During the last thousand years (well 320 odd) the central bank set a bank rate. Borrowers pay a bit more and savers get a little less. That is how monetary control works. Ever since the Bank lost all its marbles in 2008 the situation has been the bank sets a base rate, borrowers pay considerably more in most instances and savers get quite a bit more (than base rate). Notice anything? Yes, Bank of England base rate no longer matters. This means that the Bank of England has lost all control of the money supply levers - this is the disaster that the Bank seems unable to understand and why they have to be sacked NOW. They have reduced themselves to an irrelevance (as well as an incompetent joke.)

  • Comment number 4.

    3 continued

    Effective base rate is about 4% today. You can get about this for fixed rate term deposits and mortgages are considerably more expensive.

    Stephanie,

    will the BBC please publish this/a computation of the 'Effective Base Rate' to highlight just how ridiculous and irrelevant the Bank of England has made itself?

  • Comment number 5.

    Mr King and the MPC just keep kicking the can down the road and avoid doing their job. The historical anomaly of 0.5% interest rates must be corrected. 5% inflation is probably another underestimate. When will they act? When its 8% in November? He'll blame that on the wrong type of snow.

  • Comment number 6.

    According to the study group Kingston Enterprise Numerical Number Yellers the fall and rise of rocket fuel duty should always be index linked to ticket tout sales in green belt resorts situated within permit zones with a good supply line of fresh spring water on tap.

  • Comment number 7.

    It never ceases to amaze me that, with a weak pound and systemic increases in energy, commodity and food prices due to Asian demand, The Bank still expect inflation to ease.

  • Comment number 8.

    The clear message from Mervyn King - was the inflationary cost of utility bills (for the 'average' working person - my words, not his) but, Mr King should have said that?

    We know that Danny Alexander and George Obsborne racked up VAT to 20% - an inflationary tax that affects the poorest and the not so poor. Utility bills like gas/electric are through the roof plus VAT @ 5% ON top. The Treasury are raking in £billions in VAT on basic human needs.

    On top of that, MPs claim for these basic needs from the tax-payer under expenses - plus VAT back too. DISGUSTING. Hang your heads in shame.

  • Comment number 9.

    Commodity price hikes causing inflation? What planet are these people on and what if any are their motives in wanting rate increases?

    Oil prices go up so lets kick the consumer a bit more.
    Is the thinking that the consumer will have less money with which to buy oil?
    So the price of oil drops. Inflation drops with it.

    So the whole economy is rigged. Either the commodity traders or the banks get to rip off the consumer. The governments rôle is to even up the thieving.
    Lovely.

  • Comment number 10.

    I agree that bank funding costs need to be watched very carefully here. Can they privately refinance their balance sheets quick enough to coincide with the BoE winding down their taxpayer-liquidity finance. The other message I heard from the conference was that, as per the inflation brief from Government, as long as causes to inflation are said by the BoE to be temporary and for as long as tackling it could risk volatility in output the BoE will not change policy. Banks link in here.

  • Comment number 11.

    Basically BoE has decided that it will steal from everyone to save houseowners and bankers. High inflation does just that. All commodities are expensive not because of the demand but because of loose monetary policies. Shame that no journalist digs into this problem. BBC does not count - lefties always support stealing

  • Comment number 12.

    So the BOE are no longer targetting inflation but the 3 month LIBOR rate instead?

    Shouldn't we get to vote on stuff like that?

  • Comment number 13.

    #1

    If you want an acurate economic prediction -ask a weather man.

  • Comment number 14.

    1. Taking the actual index for the CPI (from ONS) from December 2003 and projecting forward at 2% to examine CUMULATIVE effect of the rate shows all on target until about January 2008. From then on inorder to match the CPI (i.e.cumulative effect) indicates, on average, a rate of 3.6%!!!!! This of course for the past 3 years and so the medium term has already happened, there is no remaining medium term to which the MPC can appeal.

    2. If the inflation tate dropped to ZERO now, it would take just over a year for prices to be back on cummulative target. If inflation dropped to 1.5% now it would take just over 10 years (if there were even a little medium term left then a very dramatic effect is needed).

    3. If all the inflation effects are outside the BoE's control then one has to worry that even the arch dove makes public comment to the contrary, "We could get inflation back to target really fast if we put the economy through the wringer" (Adam Posen www.guardian.co.uk/business/2011/mar/27/inflation-cuts-consumer-spending-mpc ).

    4. If the inflation rate is invariant to the MPC/BoE's policies then it does not have a manadate to choose monetary policy. It can only target other issues once inflation is on target. This then means there is a large democratic deficit in that an unelected group are determing policy that has other outcomes. For example by maintaining rates below inflation then MPC could be contributing to the following consequences for savers' money
    (a) It is given to borrowers for investment without a return to savers
    (b) It is being given to borrowers who have overconsumed
    (c) It is being given to banks through an interest rate spread

    There are other outcomes that the BoE/MPC MIGHT be effecting such as propping up the house bubble (John from Hendon covers this often) and reducing emmigration (due to effect of weak currency on cost - the variation with skill and age should be considered????).

    Whether the BoE/MPC emergency rates policy (the lack of nerve policy) is really bad economics or not, is the debate that continues. Nevertheless the fact that an unelected group is making these decisions and it is not debated every day in parliament shows how far the UK is away from being a democracy.

  • Comment number 15.

    THERE'S NO SUCH THING AS INFLATION!

    http://fiatsfire.blogspot.com/

  • Comment number 16.

    No Vee shaped recession then. Surprise. Competition for food and commodities elsewhere will not ease, particularly with crop yields down generally.

  • Comment number 17.

    Lies, dam lies and statistics

  • Comment number 18.

    JFH and Mike3 make excellent points and arguments. I would go further and say that inflation is likely to get a lot lot worse than 5%. The economy will continue to shrink in real terms as we are forced to spend more and more of our income on the basics of food, fuel and energy. The growth in consumption for our (and Germany's) exports in the BRIC's will slow and stop as commodity price rises curtail their growth in disposable income. The over-populated and over-consuming world is heading into a very dangerous and dark age exasperated by a lack of understanding and public eduction on the major issues of rising demand meets finite resources.

  • Comment number 19.

    Hardly a ringing endorsement of Coalition economic and monetary policy. It seem each month produces a worse economic forecast than the previous. I agree with JfH - and specifically that the MPC has completely defeated itself by its own failure to control inflation or at least to set sensible interest rates. The trouble is that government prefers to side source its responsibility for economic policy so they should not be surprised about the outcomes. Jobs shake out coming to a town near us - deficit will not reduce more likely to grow.

  • Comment number 20.

    It would be good to stop all the ramblings and pontification about other economies and stay on how it is for the 'average' working citizen IN THE UK?

    So let's stick to inflation in the UK - and the Chancellors (Osborne & Alexander) imposed higher VAT in UK that contributes to higher inflation?

    20% VAT on everything - plus on top of petrol/diesel duty.
    20% VAT on your food which is distributed by road with above duty.
    5% VAT on your gas and electricity on top of your rising domestic bills.

    So 25% TAX as you leave home, go to work and come home again ON TOP of your income tax, National Insurance Tax, Council Tax.

    Does anyone have an argument FOR this inflationary TAX called VAT

  • Comment number 21.

    If Mervyn King no longer feels bound by the 2% target inflation rate, would he at least be kind enough to tell us what his current target inflation rate is?

    Will he also admit to running an inflation policy that is intended to keep our currency competitive and to keep reducing the real wages of both public and private sector employees.

  • Comment number 22.

    3. At 15:23pm 11th May 2011, John_from_Hendon wrote:
    This means that the Bank of England has lost all control of the money supply levers

    =======

    Not as simple as that.

    The BOE is still concerned with deflation and rightly so, they just dont have the kit to deal with it.
    Monetary tools have no track record of dealing with inflation - look at Japan. Hence the BOE is flailing about all over the place.

    The crux - as you have pointed out many times and I agree with - is dealing with debt by inventing forms of creative default - personal, corporate and sovereign. The road ahead is blocked until that happens.

  • Comment number 23.

    3. John_from_Hendon

    Your comments are sadly totally correct - but who will have the guts to do the necessary?

  • Comment number 24.

    Gov't debt is still rising at a staggering speed. Retailers l know report that the increasing VAT rate to 20% has fuelled the black economy so that some deals which attracted VAT at 17.5% VAT are now cash in hand jobs at noVAT/no tax.

    The easiest way for any government to repay debt is to devalue it first. Just wait 5 years and inflation will be out of control.

  • Comment number 25.

    Would someone please explain the mechanics of how, given the current parameters to where the UK sits in the world, together with the global economic situation..........particularly with regard to demand:

    a) the BofE putting up interest rates will 'get the UK economy going again'?

    b) the BofE putting up interest rates will cause UK inflation driven by 'sharp rises in utility prices & energy bills', food & fuel to fall?

    c) the BofE putting up interest rates will assist with UK job creation & contribute to a fall in UK unemployment?

    d) the BofE putting up interest rates will assist UK firms already struggling in a flat economy to survive & propsper.

    e) the BofE putting up interest rates will help UK mortgage payers to keep a roof over their families heads?

    f) the BofE putting up interest rates will reduce pressure on the UK welfare budget?

    g) the BofE putting up interest rates will assist with UK capital expenditure programs & future investment?

    Or indeed, for those of the opposite view, why the contrary might be true?

  • Comment number 26.

    As this whole debacle identified itself in the UK economy in 2008 (in the USA in 2007) and is now projected to continue into 2013 in one form or another, can we please stop calling it a Recession. It does not fit a recessive cycle and has already gone on far too long to be so termed. So let's call it what it is - a DEPRESSION.

  • Comment number 27.

    I prefer this analysis... Oh, and the bank said there is a risk of near 7% inflation NOT 5%...

    [Unsuitable/Broken URL removed by Moderator]
    http://www.goldmadesimplenews.com/gold/mervyn-king-is-a-%E2%80%9Cfan%E2%80%9D-of-inflation-new-report-sees-inflation-near-7-3728/[Unsuitable/Broken URL removed by Moderator]

  • Comment number 28.

    Reading a number of comments concerns me. Talk of the BoE failing in controlling inflation. UK citizens need to awake from the 'Empirical days' to realise the UK is now fully exposed to global inflation through energy and food prices - alot due to the rise of China especially (thanks to UK buying their products over their own for so long re import penetration). What is required, as Thatcher thought of, is basic economic lessons for all so that citizens are equipped to make informed, rather than subjective, decisions. From cetris paribus.

  • Comment number 29.

    # 22. At 17:24pm 11th May 2011, TheComingStorm wrote:

    The BOE is still concerned with deflation and rightly so, they just dont have the kit to deal with it.

    --------------------------------------------------------------------------------

    Selgin, Higgs

  • Comment number 30.

    @26 "this whole debacle identified itself in the UK economy in 2008 (in the USA in 2007)"

    --------------------------------------------------------------------------------

    It was identified in terms of the global house price bubble much earlier at least 2004/5, this was ignored by most countries' polititicians, prefering the apparent stability (?no more boom and bust?), together with feel-good effects (?you've never had it so good?) of mortgage equity withdrawal. It was ignored by voters who bought into the rhetoric.

  • Comment number 31.

    To be honest, I don't think inflation at 5% is too bad. Nothing to get too paranoid about. Lets worry when it gets nearer to double-figures. 8% is the level at which I would start to be concerned.

    The problem is really the ridiculously low interest rates. It has distorted the economy. People obliged to wholly or partly on income from savings have not been treated at all fairly over the last few years. If other households and businesses have got themselves into debt, I'm afraid that's the risk you take when you sign the loan/mortgage agreement. It was a risk I accepted 25 years ago, when interest rates and inflation were much higher than they are now (and wages much lower!)...

  • Comment number 32.

    Inflation can be controlled to some extent via interest rates. Deflation isn't. The writing was on the wall when we readily imported Chinese manufactured goods deflation which bandaged over a lot of our problems. Now the CHinese have inflation too, and as the Japanese found 20 years ago, the solution is not via interest rates.

  • Comment number 33.

    foredeckdave wrote:

    "So let's call it what it is - a DEPRESSION."

    Dude, a depression is generally defined as an economic contraction of more than 10% or shrinkage lasting more than two years (see http://www.economist.com/node/12852043?story_id=12852043). You are welcome to argue the terminonlogy of a depression should be re-defined in order to make things sound worse, but does that change anything?

  • Comment number 34.

    So one half of the misery index (inflation + unemployment rates) continuing to climb and the latter yet to start to accelerate!
    Anyone guess when the misery index is over 20 & what the MPC's commentary will be?

    Await startling recognition that what is needed are jobs even at the minimum wage if any economic growth to be achieved to reduce the deficit. People in work already struggling and further unemployment just compounds the problem of lower tax revenues & higher welfare costs.

  • Comment number 35.

    Cui bono - make no mistake this is all about protecting the banks who have yet to play their next trick in the continuing impovrishment of the ordinary working person.Expect this game to play out over a further ten years of austerity if our spineless political classes continue to follow their insane gamble with all our futures, because this is what is really happpening - without so much as the briefest of nods to getting the consent of the people.Just as many nations strive to attain democracy we are the perfect example of where it eventually leads as corporate facism hijackjacks the illusion of freedom and dominates all our lives.It can only end in tears.

  • Comment number 36.

    @25. At 17:51pm 11th May 2011, History Repeats wrote:

    "for those of the opposite view"

    --------------------------------------------------------------------------------

    There would be some positives from partial exchange rate recovery, savers' spending, clearer price mechanism etc. But I don't think all points are opposite view, rather an acceptance that some of the horrid things have to happen for the recovery to occur. The most horrible (though people may suggest even worse) would be ypur points (d) and (e) people losing homes & businesses - no one likes this (at least I hope no one likes this) - but after this money will move to real productive increasing investment.

  • Comment number 37.

    I dismiss MPC pronouncements.

    My own experience and judgement inform me that inflation is currently nearer 10%.

    Still... the article was worth a read.

  • Comment number 38.

    Mumbo Jumbo King proves once again that he and his BOE circus is nothing more than a highly paid stooge regime for protecting UK govt from bad economic news ... and protection using spin.

    All UK govt's are over-gobalised in their outlook, policies and operation and apart from basic UK defict management ... there is little difference between the last Labour govt and th ecurrent colaition govt in terms of macro-economic policies and controls.

    The BOE QE fraud disaster is resurfacing as the banks spivs ahave allowed the QE money to get into the hands of every kind of supply chain speculator and Britain is gettiing ripped off on its imports of fuel, commodities ... food ... just about everything.

    This all means lower standards of living for most in the UK ... about 80% of the population while the over-privileged remaining 20% prosper at our expense. This is a massive transfer of wealth and opportunity away from most British people ... as succesive UK govts are tied into the same rotten financial and economic systems that leave us exposed to global forces.

    At least the Coalition govt is addressing the UK debts and deficits ... but they are going to have to do a lot more if the UK is not going to continue in real terms decline ... as there is 'no growth' in real terms ... the idiots at the INS are calling import and other inflation as growth.

    This vicious circle of UK decline can only be halted by a constitutional review of Britian's economic strategic direction ... but with so many vested interests at play ... it is difficult to see who would be able to undertake such a review as the 'establishment turkeys' are not going to vote for Christmas.

    Britian is in trouble and needs clear strategic economic direction and tough policies ... but in the current mnamby pamby poltical environment ... we will just have to suffer the decline and watch the globalised supply chain elite get richer and richer ... while most get poorer.

    Pessimistic, I'm afraid but the UK is in real decline ... as I've been saying on here for 3 years ... our govts are to blame ... we must have strategic direction and review of everything that matters to the UK economy ... and we need this quickly
    (although the process itself would take a minimum of a year or two) ... this isn't just a political matter ... this is about fundamentals in our UK economy ... use of capital, imports/exports, EU membership etc.

  • Comment number 39.

    #31. TGR Worzel wrote:

    ......... If other households and businesses have got themselves into debt, I'm afraid that's the risk you take when you sign the loan/mortgage agreement. It was a risk I accepted 25 years ago, when interest rates and inflation were much higher than they are now (and wages much lower!)
    --------------------------------------------------------------------------------

    The high interest rates or more particularly the high inflation rates of 25 years ago are part of the cause of people having to pay more for a home. Those reasons, together with a reduction in council/social housing plus a rise in property speculation effecting supply.

    Ordinary people, householders, who got themselves into debt in the 90's/00's, in order to have a home to house a family, were as much victims of the prevailing economic situation & those caused by historical economic & government policy as were those who nearly lost their savings during the banking crisis (before the governments stepped in with tax payers money).

    People tend not to put their lives on hold for 20-30 years & live in the times they are in.

  • Comment number 40.

    Uncertainty everywhere, and no one knows quite why.
    Have you ever wondered (for example) why the stock market can go up, up, up, when the money in your pocket is going down, down, down.
    It's the thick, carpeted walls of those private financial casinos. e.g. Wall Street wants to maintain its hegemony over "credit derivatives", but over the fair-practice body of the EU!
    The EU official press release: The European Commission has opened two antitrust investigations concerning the Credit Default Swaps market. CDS are financial instruments meant to protect investors in the event a company or State they have invested in default on their payments; this includes sovereign debts.
    The Commission has information that 16 banks (dealing in CDS) feed insider information to Markit - the financial information company for the CDS market. I call this collusion.
    When proven, it would be in violation of EU antitrust rules. Does this stink up your nose?
    Also it would appear that certain clauses in Markit’s licence and distribution agreements could be abusive and impede the development of competition in the market for the provision of CDS information.
    Do you think, as I think, that there was other hanky-panky associated with the abuse, maybe bribes?
    It's no wonder these Wall Street boys do not welcome the EU commission into their cushy little casinos.
    Until you clean up the gambling and the speculation, how can you be certain of anything, unless of course, investment banking is completely split off from regular banking.

  • Comment number 41.

    The high inflation rate was to have been expected. If you check the currency conversion chart OANDA.com you will see that the pound has been silently slipping downwards against the Euro for months - this means that imports become more expensive, and the UK is a net importer. Even though within the European Union there are no trade barriers I find very few products made in the UK on the shelves. I was quite surprised to find that Royal Mail buys their padded postbags from China. In addition UK VAT was increased 2.5% this year, which was an additional burden for the consumer. H.G.Wells wrote: Great Britain has to live by foreign trade and cannot keep its excessive population fed in any other way. It is threatened now, it has almost the sure prospect of a peramanent cancer, a breeding mass of unemployed urban people congregating in all the large industial centres of the country. It has no idea of what has to be done about this. (A Forecast of the World's Affairs in: These Eventful Years - The Twentieth Century in the Making Vol. II. - Encyclopaedia Britannica Co. Ltd., 1924.)

  • Comment number 42.

    This from the BOE's own website...

    The Bank’s monetary policy objective is to deliver price stability – low inflation – and, subject to that, to support the Government’s economic objectives including those for growth and employment. Price stability is defined by the Government’s inflation target of 2%.

    The key part is 'subject to that'. Which means keeping low interest rates to protect growth, influencing the cost of money that banks pay etc etc are entirely secondary to its primary goal, keep inflation at 2%.

    Again from their website...

    The Bank is accountable to parliament and the wider public.

    How exactly is parliament holding the bank accountable for its woeful inability to control inflation?

    And when did the BOE quietly drop the 'subject to that' qualifier and become a quasi-fiscal/monetary policy maker, putting lots of different judgment calls ahead of controlling inflation? And as others ask, who elected them to do this?

    And if parliament isn't holding the BOE to account, how on earth do the wider public go about it? Vote them out? Hardly...

  • Comment number 43.

    #33 Chris Neville-Smith,

    Firstly I ain't no Dude!

    There is no formal definition of Depression and the 10% figure over 2 years does not fit any of the depressions that the UK has suffered over the last 200 years.

    The call to recognise that our circumstances are not those of a recession but have more to do with those of depression is not a pedantic one. Neither is it made "in order to make things sound worse". Unless and until we adopt long term strategic changes to the make-up and purpose of our economy then we will continue to follow plans that are short-termist and will not build a revitalsied economy. The difference is immense.

  • Comment number 44.

    @ 38 -You are so right

    The Q E fraud/disaster has meant that a massive wall of money has migrated to the Far East. That has increased inflation in China particularly. We will now import that Chinese manufactured goods inflation back again soon. Talk of being between a rock and a hard place is nothing to what is about to hit us. We will then have to raise interest rates NOT to stem inflation, but to protect £Sterling before it falls completely out of bed. The government will not be re-electable in four years time, Labour will get in, promising to protect public service (i.e. non-income generating) jobs and printing more money that it will leave future governments to repay, so the whole roundabout will start off again

    (What goes around, comes around)

    IF the Conservatives had thought it through, they would have voted "Yes" to AV and then got the support of people voting for UKIP, but they have now consigned us to another Labour government.

  • Comment number 45.

    Print money, flood the world with liquidity and then be surprised by the resultant stagflation. Heigh ho, it's a tough life being govenor and heading for your inflation linked pension in a couple of years.

  • Comment number 46.

    When Mervyn King became Governor GDP growth was about 3% and inflation was 1.5%

    Sheesh! Stuff the forecasts - just look at past performance. How much longer can he go on?

  • Comment number 47.

    "There is no formal definition of Depression and the 10% figure over 2 years does not fit any of the depressions that the UK has suffered over the last 200 years."

    Uh? You're saying that if none of the UK's recessions in the last 200 years have met any recognised definition of a depression, we should use a different definition of a depression?

    There are a lot of problems in the economy and it's fine to have a debate on whether the current economic plan is right, but we need to start by discussing real problems, not made-up problems based on ad-hoc labels.

  • Comment number 48.

    29. At 18:17pm 11th May 2011, Mike3 wrote:

    # 22. At 17:24pm 11th May 2011, TheComingStorm wrote:

    The BOE is still concerned with deflation and rightly so, they just dont have the kit to deal with it.

    --------------------------------------------------------------------------------

    Selgin, Higgs


    ===============

    Higgs ?

    Deflation is the greater threat. It has got Japan licked.

    Repeat, no known effective tools. The last great deflationary period, the 1930's, was brought to an end by WW2.

    The UK economy is dead man walking. Teh old model, Banking, Public Spending, Private Debt, Consumer Boom is discredited. The new model ?, don't hold your breath.

  • Comment number 49.

    All you need to remember is that a 'forecast' is nothing more than a guess. An 'informed guess' is still only opinion - not 'fact'.

    When you are seperated from your readies, you experience inflation at the sharp end.

    When I think of the increased cost of food, fuel, and power over the past 12 months, I am rather surprised to be advised that my cost of living has increased by only 3% or so. It just doesn't fit the facts.

    I am bound therefore to conclude that the MPC are preparing data for a different country!

  • Comment number 50.

    #47 Chris Neville-Smith,

    If you wish to believe that the im-balances within our economy and a self-emascilating continuation of globalisation are not REAL problems for the future wellbeing of the British economy then you can do so. You can also argue about bank bailouts and bonuses and deficit reduction if you want. However you will be concentrating your verbiage upon symptoms without addressing the underlying disease.

    Recessions are short term fluctuations within an economy. Depressions on the other hand are long term and identify strategic flaws within the economy. If those flaws are merely addressed by short term thinking and planning then the disease will not be overcome. Now, if you want chapter and verse on the Long Depression then refer to John_from_Hendon but it would appear that the nature and length of our present problems do have a lot in common with that event.

  • Comment number 51.

    @42 Spot on.

    And since the BoE/Governor/MPC isn't directly elected all the 'wider public' can do is hold to account those who are supposed to hold them to account. Ultimately it's Parliament's responsibility. If Mervyn is wrong or incompetent, then so is The Chancellor.

  • Comment number 52.

    I have a bit of a problem with productivity. A company might be able to improve its productivity by laying off workers, new technology etc. But if there are not jobs for those to laid off to go to, our national productivity is unchanged. I accept that a more productive company might be more competitive and be able to grow. But if there are more on low incomes or benefits, markets at home will grow only slowly. If the UK becomes more successful at exporting, the pound will go up and part of our competetive edge will be diminished, slowing export growth.

    Productivity is important. but not just in existing businesses, but in those that are yet to be created. The most important thing our governmnet can do is to encourage job creation. Now here is my novel idea. Business studies courses are useless as they miss the most important thing about busiesses which is having the new idea to bring to the market, There are lots of people doing Arts courses, engineering or science courses etc. These people have ideas, but do not have the business training to bring them to market, they get let down by those who just see the bottom line and miss the big idea. The solution is obvious - now Vince Cable could .....

  • Comment number 53.

    Let me see.....the banks stole over a trillion of other people's personal retirements and investments and although it disappeared for the individuals it was not lost...the banks kept it. The governments than gave the banks another trillion or so and on top of that put another trillion or so in the stimulus. Banks and big businesses are flush with cash but not spending any of it to create jobs or other useful investments. It is easier to just raise the interest rates and have the governments tax the people. And, now they are surprised about inflation. These great minds. Nice charts Steph.

  • Comment number 54.

    @ 48. At 20:30pm 11th May 2011, TheComingStorm wrote:

    29. At 18:17pm 11th May 2011, Mike3 wrote:

    # 22. At 17:24pm 11th May 2011, TheComingStorm wrote:

    Higgs ?

    ------------------------------------------------------------------------------


    Sorry, Robert Higgs - I wasn't alluding to searches for god particles at the LHC,

    Higgs and Selgin are two economists who have written on deflation and don't take such pessimistic views, there having been plenty of periods of growth that have occurred under deflation (not hyperdeflation).

  • Comment number 55.

    @51. At 20:54pm 11th May 2011, The-itinerant-ex-pat wrote:

    "And since the BoE/Governor/MPC isn't directly elected all the 'wider public' can do is hold to account those who are supposed to hold them to account. Ultimately it's Parliament's responsibility. If Mervyn is wrong or incompetent, then so is The Chancellor."

    ------------------------------------------------------------------------------

    I think Coalition, opposition and last government are all responsible (if I cannot find an individual to blame I will blame all). Setting up the BoE as indepepndent with just the exchange of letters for admonishmnet was poor (last governement), not just changing terms for BoE or strongly reminding that there is only one target is poor (this government), not analytically questioning is poor (this opposition).

    I am worried that even if the Chancellor knows he should act that the opposition are just waiting to pounce for purely political capital. I think, somehow - but I don't know how, GO and EB need to have an off the record chat so they can find a way of then addressing the subject in public. The country is not in a sufficiently robust state for a game of politics.

    [It is either that or a public campaign to end the independence of the BoE, and make the MOC advisory to the Chancellor - then parliament would inevitably debate the issues]

  • Comment number 56.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 57.

    #52 Boilerbill,

    "Business studies courses are useless as they miss the most important thing about busiesses which is having the new idea to bring to the market,"

    That is just a ridiculous statement. The majority of businesses are ME2 operations and not Innovators.

    Business Studies allow students to develop an overall understanding of the major aspects of business and management and how they inter-relate. It therefore gives them a far better basis upon which to develop their future specialisations. Additionally the majority of good university courses, particularly in engineering have business units. Surprisingly the engineers, technologists and scientists often complain that these units are a distraction from their studies.

  • Comment number 58.

    Stephanie says: -
    However, it's also possible that firms will try to regain their lost productivity another way, by simply laying off workers they have previously tried to keep on. Long-term, that might not be disastrous for national output (if the higher productivity ultimately generates higher demand) but it would have pretty undesirable short-term consequences for the labour market…


    Well - That’s extraordinary Miss Flanders! Go for improved ‘productivity’ levels long term by laying off workers! That’s the answer – It’s brilliant!

    In that case: -

    I hereby urge the good citizens of Mugsborough (a. k. a. the UK) to be much more pro-business! That’s the real problem here as workers are thinking above their stations and being too selfish in the process. They are a cost to business that has to be minimised and they need to take a leaf out of the book out of the far cheaper workers in the Far East.
    Workers need to realise that they are human resource units (HRU’s) and as such they ought to allow businesses to do what ever they like from now on in the ‘national interest’. It’s the war time spirit that’s needed now and it’s clear to see that we are all in it together.
    This means allowing ‘managers’ to ‘manage’ and any ideas about wage rises and a ‘living wage’ are completely out of the question for ever. This is ‘business’ after all and if, for example, the boss says there needs to be 30% pay cuts, for a few years, and lots of redundancies too then that should be politely accepted and respected because that’s clearly in the national interest.
    Also if these resource units could just learn to do an awful lot more than they do towards making rich people richer then there’d not have been all these silly problems in the first place.
    Trade Unions should be swiftly outlawed for getting in the way of the noble behaviours of free market forces and the ‘minimum’ wage should be made into the maximum wage instead, for those units at non-management levels. These things would obviously be fine because they are so clearly in the national interest and the outcomes would be to encourage the HRU’s to do ‘more with less’ thus effectively combating inflationary forces too. The units could learn so many highly valuable lessons doing this that would strengthen their character too. Its tough love that’s really needed here isn’t it?

    If people could only learn to show unquestioning love and respect for the world class political and corporate elite’s we have in London who are all trustworthy person’s of outstanding moral fibre then we might just be able to tame inflation for a few years and go back to being the happy, relaxed and fabulous nation we used to be ever since dear Margaret and Ronald showed us the way to escape the road to serfdom.

    Workers need to accept less for the foreseeable future and allow their betters to sort this situation out. Once there’s profit to be made again then it’ll be back to business as usual. Until then workers need to remain patient, polite and supportive and stop causing problems, eg; inflation…

    PS – And when are we going to get the interest rate back up to double digits? I voted Conservative so that hard pressed savers like me could get my fair reward for being such a good saver of the wealth I inherited from papa. It’s just not cricket.

  • Comment number 59.

    57. At 21:38pm 11th May 2011, foredeckdave wrote:
    ...the majority of good university courses, particularly in engineering have business units. Surprisingly the engineers, technologists and scientists often complain that these units are a distraction from their studies.
    -------------------------------------------------------------------------------

    ...probably because they see the lack of logic and the tendency to self congratulatory b*****ks that management graduates spout at every opportunity.

  • Comment number 60.

    On the BC news at six today Stephanie was in the Studio with Huw Edwards. At news at ten she was giving reports from Athens - in daylight - making out it was real time. BBC please explain your deception, or face a serious complaint of trying to deliberately mislead the British public.

  • Comment number 61.

    57. At 21:38pm 11th May 2011, foredeckdave wrote:

    Surprisingly the engineers, technologists and scientists often complain that these units are a distraction from their studies.
    -----------------------------------------------------------------------------------------------------------------
    What's surprising? You enrol to learn about science, engineering or technology, not some pseudo sociological claptrap, or even worse the ultimate pseudo science of economics. The less that students of serious subjects have to do with "business studies" and similar, the better.

  • Comment number 62.

    The reason we are told that inflation will fall back within target in two years time is because it is easy to get away with saying two years indefinitely without it attracting too much attention. If they were to say three years for example everyone would say that was too long a time-frame and rates should be put up sooner, one year and people will be counting down the months expecting to see results. But two years is perfect...it was two years 12 months ago...it is still two years today...it'll be two years in 12 months time...Is 'two years' the new 'temporary'?

  • Comment number 63.

    Nope,sorry History Repeats #39 but I am with TGR Worzel #31.Interest rates are too
    low and savers are being treated very shabbily.Why pillory us? have we not been the sensible ones? Paid our taxes.Paid....with great difficulties at times.....the mortgage.Then we get punished! fair enough we accept the ups and downs of interest rates but really just how much longer can they realistically stay where they
    are?

  • Comment number 64.

    60. At 22:25pm 11th May 2011, MissCurly wrote:

    "...On the BC news at six today Stephanie was in the Studio with Huw Edwards. At news at ten she was giving reports from Athens - in daylight - making out it was real time. BBC please explain your deception, or face a serious complaint of trying to deliberately mislead the British public..."

    ++++++++++++++++++++++++++++++++++++++++++

    Ooh...



  • Comment number 65.

    What do you mean by "inflation"? Home prices fell by 1.4% in April.



  • Comment number 66.

    INFLATION UP. GROWTH DOWN.

    A fitting strapline which neatly sums up our problem.

    So... what about a possible solution.

    Well, here's my (probably useless) thoughts in ranked order:-

    1. Cultural Change.

    It seems to me that, as a nation, we have developed a dependency culture where individual responsibility is often denied. It is always someone else's fault. There is a belief in entitlement - bonuses, benefits, status, inside knowledge, salary increases, the right to wealth, the latest 'new thing' etc. etc.

    If you are blessed and do not to suffer a disability, these benefits are not a right - they must be earned!

    So... priority number one.

    Inculcate the facts of life! Irrespective of (so called) social class, employ policies that encourage (force!) a change of attitude. Without this transformation, further efforts will inevitably fail. CHANGE IS DIFFICULT.

    2. Political Change.

    Politicians are gifted with the trust of voters. In a democracy, this is the only way an individual can express an opinion. This trust should never be abused. Recent events have demonstrated that there have been betrayals of this trust.

    THIS IS UNFORGIVEABLE. THERE IS NO EXCUSE FOR THIS SORT OF BEHAVIOUR.

    So... priority number two.

    Party Leaders and senior politicians need to embrace a political ethos that demands an obligation to service on behalf - AND ONLY ON BEHALF - of the people. Thiis requirement should be pursued ruthlessly, without favour.

    Possible?... we shall see.

    3. The Economy.

    We have now arrived at the ridiculous stage where certain banks are judged to be 'too big to fail'. This is frankly foolish. Since when have banks been granted the democratic right to run the UK economy? This is utterly ludicrous and should never have been permitted. And, of course, we are now printing money. It's hard to believe, isn't it?

    So... prioity number three.

    Introduce an appropriate version of 'Glas Steagall' and shut down the printing presses. A correction is required - now or later - that's a fact!

    4. Business.

    On behalf of the country, our politicians chose to pursue a strategy of promoting the financial sector at the expense of the manufacturing sector. 1986 saw the dawn of the 'Big Bang' in London and the Gravy Train started to roll. Bankers were transformed overnight from unassuming bowlered toffs to icons.

    And here we are!

    So... priority number four.

    Put the financial sector back in it's cage and train it! In the meantime, encourage and feed the entrepreneurs of this country. They are desperate to succeed!


    I could go on, but you've probably read enough from me. My apologies if my thoughts seem simplistic. I'm just concerned!

  • Comment number 67.

    3 JfH

    You seem to think that things can be controlled by the BoE. They cannot. The remit is limited. The tools are too limited. Give them stronger tools and more scope for intervention and then the next complaint will be that they are a unelected dictatorship. I don't know why you go on about Mervin King all the time, he is one man. Do you really blame one man in all of this. Most of the UK public have been involved in this game and at least gone along with it when it was looking good and supported the government policies that have been part of the process via the electoral system. Mervin King didn't get us here on his own. If the BoE max out the downsides on every possibility then the forecasts will be wild and they will be accused of talking down the economy. It is inevitable that moderation is involved in their language. If you write high level strategy documents they are always moderated. Events have not been moderate, so outcomes are suboptimal. Its part of the process. As far as interest rates go the world has gone along that route by and large. Do you think the world is wrong and you are right. Just interested.

  • Comment number 68.

    #61 abune

    "What's surprising? You enrol to learn about science, engineering or technology, not some pseudo sociological claptrap, or even worse the ultimate pseudo science of economics. The less that students of serious subjects have to do with "business studies" and similar, the better. "

    And thereby we can now understand why this country has very little hope of ever making any true recovery.

  • Comment number 69.

    No uncertainty where I'm sitting. You guys might sit amongst acronyms and hopeless faith in numbers. Unfortunately the rape of the planet's resources combined with global village normalisation will get us all in this country in the end..and it won't be the odd 3%!

  • Comment number 70.

    There was a puzzled commodities trader on the radio earlier saying that whatever was going on in the markets it had nothing to do with supply & demand. What could it be ?

  • Comment number 71.

    #63. At 22:46pm 11th May 2011, sevenstargreen wrote:
    Nope,sorry History Repeats #39 but I am with TGR Worzel #31.Interest rates are too
    low and savers are being treated very shabbily.Why pillory us? have we not been the sensible ones? Paid our taxes.Paid....with great difficulties at times.....the mortgage.Then we get punished! fair enough we accept the ups and downs of interest rates but really just how much longer can they realistically stay where they
    are?

    ==============================================================

    There's the rub, you talk about paying your taxes as though people with mortgages don't!!!!!!?????????!!!! Why pillory them? As I stated, other than those who speculated to accumulate, most ordinary people simply bought a house to live in at the given market rate at the time. They had no control over the various forces, both economic & political, neither at the time nor those of previous generations, (house price inflation, under supply due to mass selling of council housing, insufficient supply, mass immigration etc).

    Much in the same way that some people, due to fortune of economic circumstances had the ability to save. If everyone had taken the 'I'm alright Jack' attitude, at the time of the banking bailouts, plenty of 'sensible' savers would be in a similar situation. As JfH constantly talks about devaluing the banks assets, then would have been the opportune time, however there was no appetite for it.

    We are talking about a specific time in our history, when people are struggling due to economic inequities caused to a large extent by the fall-out from the bail-outs, high unemployment, low growth, low pay, no confidence. In other times such a call to raise interest rates wouldn't have such a dramatic effect & potential social fall-out.

    Everything that has happened in these last 4 years show we aren't living in those times. There are plenty of other options for those looking for a return on capital other than bank interest. The economy is crying out for that type of dynamic investment. Of course, the cash rich might be looking for interest rate hikes, looking to make a killing after a subsequent property crash & forcing a the new bubble, no care for the social consequences.

  • Comment number 72.

    If UK inflation is due to global factors i.e. commodity prices, why is it so much higher in the UK than in the EuroZone or US?
    If the BoE target means it needs to lower inflation, and it's tool to do that is to raise interest rates, how can it not raise interest rates?
    Why do BoE forecasts always seem to show inflation coming down at a point in future just close enough to justify inaction, and just far enough to be untestable?
    If people should save more and propery prices are unaffordable, how does lowering interest rates help?

  • Comment number 73.

    “Through financial speculation – hedge funds, index funds and other ways to manipulate the market – the commodities market is in a very unfortunate position. This has resulted in every coffee company having to pay extraordinarily high prices for coffee.

    I don’t know the rules and regulations in the UK but unfortunately in the US you can’t identify who is buying the commodities. So there is no transparency. I just think it is [unfortunate that] at a time in the world where there is such concern over the economy, unemployment and the cost of food – not to mention the cost of oil – we could be in a position where we have inflationary prices on food not based on supply and demand. This is the first time in my 30-years of being in the coffee business where this exists…

    I don’t think, by the way, that this is sustainable, however it is not a good situation for the consumer and I am not convinced that the farmers benefit from this,”

    Howard Shultz Starbucks founder

  • Comment number 74.

    The Bank of England base rate is a risk free rate while that charged by banks includes an element - perhaps now the largest element - for credit risk. In the conditions experienced post-Lehman it is hardly surprising the credit risk element is so large. Another factor causing inter-bank rates to be so high was the near hysterical reaction of the regulatory authorities to the collapse of Lehman and the Icelandic banks, virtually forcing banks to hold more and more of their liquid assets in central bank reserve accounts and short dated gilts, thereby starving the inter-bank market of liquidity. But it was very convenient for funding a government heading swiftly into the largest peace time deficit ever seen in the UK.

  • Comment number 75.

    @ 70 > I totally agree. It is to do with speculation. When more money is being made on foodstuffs by a whole chain of speculators than by the people who grow it as it is now, that statement truly applies. People are now being encouraged by e~advertising to sit at home and do "Foreign Exchange Trading". That is SURE to be another accident waiting to happen as some of it will be done with borrowed money they can never repay.

    And @ 58 > (PS – And when are we going to get the interest rate back up to double digits? I voted Conservative so that hard pressed savers like me could get my fair reward for being such a good saver of the wealth I inherited from papa. It’s just not cricket. ) That's a brilliant point. People still expect to be entitled to a standard of living that previous generations worked for. Welcome to the world of reality where nobody has a right to EXPECT to live off capital because interest rates are lower than they once were. The key word is "expect" and it is not the same as being able to live off the benefits of your lifetime earnings

  • Comment number 76.

    Nautonier #38

    I agreed with pretty much everything you said, until you got onto EU membership. If you think about the reform of the UK economy that is required, we could usefully learn a thing or two from Germany about investment in manufacturing (and labour relations) and from France about maintaining national interests in the face of global competition.

    As I see it, the UK was alone in stripping out its manufacturing sector and becoming a consumer economy living off services (financial and retail) and cheap imports. That will take year to reverse - and the question is whether it will be easier to do so within or outwith the EU? A moot point, but the EU is not the central issue: indeed, had we been more "european" we would not be in the mess we are in.

  • Comment number 77.

    @68. At 23:02pm 11th May 2011, foredeckdave wrote:

    #61 abune

    "What's surprising? You enrol to learn about science, engineering or technology, not some pseudo sociological claptrap, or even worse the ultimate pseudo science of economics. The less that students of serious subjects have to do with "business studies" and similar, the better. "

    And thereby we can now understand why this country has very little hope of ever making any true recovery

    --------------------------------------------------------------------------------

    Sorry foredeckdave, I couldn't tell which way your comment was leaning, but I am pro engineering courses including business (I guess in the UK we can look to Warwick Manufacturing Group as an example). For those who argue against, why isn't it useful for engineers to study the business studies subjects of, say: supply chain management, management (and valuation) accounting, rational decision theory, psychological and behavioural biases, soft and hard system analysis, intellectual property, quality management, project management, mathematical programming etc. Not all BS (ho ho) degrees have these subjects, but (dare I say) the more solid ones do and I think some engineering students are good enough to cope.

    (And, not that I am one to defend economists but seeing the report that John Hussman has taken market mathematics over to gene pattern spotting and successfully published this in Molecular Autism does remind one that stats evolves in one application and then moves to another - innovation happens where it happens).

  • Comment number 78.

    I think Mervin would make a good grandad in that sweet advert.

  • Comment number 79.

    “Inflation up, Growth Down, Uncertainty Everywhere” Why is this such a shock? Its been clear for many years – at least to some of us who live in the real world - that the UK economy needs to be restructured so the country can pay its way. All we’ve seen for the last few decades is a bunch of drips under pressure (experts) in denial “rearranging the deck chairs on the Titanic” and blaming all the problems on external factors. Occasionally they make a prediction in the vain hope that mere words will talk the economy into a favourable state and as time passes they and their predictions become the focus of ridicule, yet they persist in this scam. Until they own up and admit that they don’t have a clue, expect an acceleration in the downward spiral and an ever widening wealth gap between the haves and the have nots. It can only end in tears unless a miracle happens.

  • Comment number 80.

    76. At 07:50am 12th May 2011, tFoth wrote:

    Nautonier #38

    I agreed with pretty much everything you said, until you got onto EU membership. If you think about the reform of the UK economy that is required, we could usefully learn a thing or two from Germany about investment in manufacturing (and labour relations) and from France about maintaining national interests in the face of global competition.

    As I see it, the UK was alone in stripping out its manufacturing sector and becoming a consumer economy living off services (financial and retail) and cheap imports. That will take year to reverse - and the question is whether it will be easier to do so within or outwith the EU? A moot point, but the EU is not the central issue: indeed, had we been more "european" we would not be in the mess we are in.

    ..................
    Some of those doing the best out of the EU are not even members!!!!!

    We're not Germany (with its economy designed by Britian and the USA at the end of WW2)... we are not a continental economy ... and we have to stop comparing ourselves all of the time with with Germany.

    Review of EU membership does not necessarily mean leaving the EU ... it simply means being European on essential European matters and not wearing a EU straightjacket that interferes with everything that we do and all aspects of our lives.

    All we need from the EU is trade and co-operation on security ... we don't need to be wearing the EU straightjacket to achieve this ... the rest of the EU nonsense is not required ... the main effect of EU membership for Britian has been VAT ... the problem of inflation in the UK can be tracked right back to the day that VAT was introduced in the UK by the idiot Ted Heath.

    The EU debate is part of the comprehensive startegic debate that is now needed in the UK on the direction and structure of the UK economy ... this is the over-reaching debate that never happens that the UK govts and politicains cannot handle and refuse to discuss ... we need this now... and we need to end the gravy train for the privileged and the Tories are just as bad as the Labour govt for preserving these damaging over-privileged vested interests that run our economy ... into their own bloated bank accounts.

    Many think I'm a Tory but I am not and I have serious concerns over the skewed bent Tory over-privileged as much as I do about the damage done to the UK economy by Goondog Trillionaire ... AKA dirty Brown.

    The EU straightjacket is a debate that must be had or we are going nowhere ... i.e. about the future of the 80% of the real British population that reallly matter.

  • Comment number 81.

    Two points to make. (1) A rise in inflation was completely predictable given the policy of "Quantitative Easing" (2) All the bad news around the economy can be traced back to the fact that we don't see enough stuff to people abroad.

  • Comment number 82.

    #37 and #49

    In the last week, I read in something reasonably reliable but I can't remember what that if current inflation calculations used the same measures as ten years ago, inflation would be 10%.

  • Comment number 83.

    #80. At 09:38am 12th May 2011, nautonier wrote:

    the problem of inflation in the UK can be tracked right back to the day that VAT was introduced in the UK by the idiot Ted Heath

    That's nonsense, both politically and statistically.

    The imposition of VAT on goods and services has no persistent effect on inflation. There was, obviously, a one-off hit on prices when VAT was first introduced, and lesser hits each time the rate of VAT is increased, but they will drop out of the inflation figures after 12 months.

    Every country in the EU has VAT, as do many outside the EU, and not all have an inflation problem. Inflation in the UK was extremely low during the middle of the last decade, even though we had VAT. So I fail to understand the link you are making between VAT and inflation.

  • Comment number 84.

    "This won't come as a surprise to many"

    It should have been obvious to everybody that two increases in VAT on top of increases in world prices due to recovery elsewhere, would have this effect. If the Treasury was really so afraid of what might happen in the bond market, that immediate reduction of the deficit was essential, increasing VAT was probably the worse possible choice of method for doing so.

  • Comment number 85.

    A fine state of affairs and how many people wanted the interest rate to increase. I’m afraid short term gain Is the devil in the detail these days, you cannot get “something for nothing”, this is what is commonly known AS INVESTMENT. JUST TAKE A LOOK A T UK PLC BALLANCE SHEET check out the borrowing, what does this tell you about “growth”. If you increase the strength in sterling, raise interest rates you further increase the balance of payment deficit. We have a series resource problem exasperated with increased population and soon to be realized global food shortages I’m afraid the BOE forecast for the future IS THE WATER LAPPING AT OUR SHORES.

  • Comment number 86.

    So-called growth is a measure of growth in spending

    Growth in total household debt has virtually stalled since 2008 and most of the growth before that was on borrowed 'money'

    Growth in government spending has virtually stalled too and a nice big proportion of the recent previous annual growth in government spending was based on borrowed money

    So, why would anyone expect any growth as a measure of spending right now

    Whether it matters is another matter. Growth in spending based on borrowings for stuff bought today and buried in landfill, poured down drains, burnt, or otherwise disposed of tomorrow is not necessarily a good thing unless you happen to want to cream off a proportion of the spend to pay for promises that can't be kept.

    Growth in spending associated with increasing population by one in twelve over ten years or thereabouts in a nation that can't feed, heat or light itself can't be sensible, can it?

    The size of coats and how the cloth gets cut over the next 40 years has to change and some frank honesty about this needs to start right now.

    General living standards and/or size of savings for most people will fall. That's it.

  • Comment number 87.

    80. At 09:38am 12th May 2011, nautonier wrote:

    the problem of inflation in the UK can be tracked right back to the day that VAT was introduced in the UK by the idiot Ted Heath
    -----------------------------------------------------------------------------

    There was the over complex Purchase Tax prior to the EEC required VAT being introduced. Even the initial 12 month influence on inflation would have to be judged against the change in overall tax on purchases between the two systems.

    Even though changes fall out of the inflation figures after the first year there is of course still a lasting effect on purchasing power.

  • Comment number 88.

    All the media seem to be reporting the slower growth and higher inflation expectations but that's not the main message I got from the presentation yesterday.

    I watched nearly all of it live and uncut on Bloomberg TV and the main points I took from it were:-

    1) they seem very unsure of their forecasting and emphasize as much.
    2) the outlook hasn't actually changed much at all over the "medium term".
    3) there are no definitions being offered of "medium term" *
    4) the recovery is going to be s..l..o..w......

    * I find this very unsatisfactory really, it could mean 1-2 years for one person and 5 years to another. Can we have some clairty please ?

    And here's the big one....

    5) Interest rates will not go up appreciably (or maybe at all) until there is evidence that interbank lending/borrowing rates have fallen enough to offset the central bank increase.

    I think the big "take-away" is that when interest rates do rise they probably won't hit mortgage holders much because the BoE won't start raising them until the banks can absorb them (when they actually begin to compete over mortgage products again). Of course, this could be perceived as positive news so the media are probably ignoring it.

    The more cynical side of me thinks that when the BoE raises it's rates the banks/building societies will raise theirs (until competition kicks in, or their is a fair trading investigation !) irrespective of the interbank rate they pay.

    Either way, I don't think the big news is slower growth or higher inflation because the change is so minor.

  • Comment number 89.

    77. At 08:12am 12th May 2011, Mike3 wrote:
    @68. At 23:02pm 11th May 2011, foredeckdave wrote:
    ---------------------------------------------------------------------------------------------------------------
    I hate to disagree with both of you, but to say that the UK's problem is not enough people trained in business studies is the opposite of reality. This country has shedloads, boatloads even, of graduates in business studies, MBA's and other such creatures. What the country is desperately short of is people with engineering and scientific skills.

    This country has tried to run an economy on the back of financial services for 30 years now, a sector packed out with MBA's and business studies graduates. The result? Just look around you.

    You can bet your socks that the "star performers" of the banking and finance world who have driven the world economy to the edge of oblivion through sheer stupidity and incompetence were fully loaded with all the business studies type education that money can buy.

    You do not improve the education of engineers and scientists by grafting on business studies modules- you simply dilute the technical content of their courses.

  • Comment number 90.

    nautonier

    Whether you like it or no there is no way out of the EU and the EU will strengthen its influence over the UK given time. That process is in place. Live with it.

    There is nothing wrong with looking at a country which is managing to export well, Germany, and compare. The weakness of the UK appears to have its roots in the British Empire trading behaviour which has been only too happy to asset strip and sell and buy ad lib from any source playing one off against the other. With a steady reduction in the size of the Empire this device was turned onto UK domestic activity post War and accelerated in the last quarter of the last century. I also hardly think the German economy was set up by the UK after the war and even if it was they have been running their own show for decades.

    The introduction of VAT has nothing to do with the road that took us here. Usually you write well but I can't agree this time.

    The main problem facing the UK is it has become a speculation culture at all levels including the average guy wanting to property speculate (and forgetting that the bank owns the house and the householder owns the liability), and evidenced by HMG under Brown even suggesting in writing to parents that Child Trust Grants were placed in stock market products to get the best return. Virtually no cautious comment has been given on speculative activities by authorities, only 'no comment', known as disinformation, or positive comment. Presumably influenced by the resultant tax revenues, ie being party to the spiv game. It is this speculative culture that has sold off and scrapped slower return activites that need a long term approach, in contrast an approach and associated protection which has been shown in other European countries. It is a matter of value judgement and much has been given no value in this country. I suggest you look up how many ministers in the 1970 and 1980s had a background as property developers and similar. Or look at types like Slater Walker, Walker being an MP at the time, with a pr that Slater himself referred to as publicity ratio not profit ratio. That is where the disembowelment of the UK started. Further aided and abetted by pension funds who moved into speculative activities and who have apparently shown a lack of due diligence in the financial crisis as they have responsibilities as major shareholders, which seems to have had little questioning.

    The carpet has so much swept under it you need a ladder to get onto it. And both mainstream political parties appear to have been a part of it.


  • Comment number 91.

    Hello Phillip Braithwaite
    from Faisal

  • Comment number 92.

    Come on we all know the country fell over the cliff some time ago and is sliding down the slope into the abyss of the mystic swamp...welcome to the third world folks. If we could calculate inflation they way we did thirty years ago - (got a wheel barrow) And of course even our friendly economics correspondents at the BBC know the reality, but they are all good little public school Oxbridge educated types and will say or do nothing that might endanger the established order! ;-)

  • Comment number 93.

    On the basis that a target is something that you actively set out to hit why do the BOE and MPC continue with the pretence that they have one for inflation?

  • Comment number 94.

    The Bank of England fiscal policy is wrongly based on manufacturing taking up the slack in the economy, in effect passing the buck...
    Manufacturing can't take up the slack for two reasons, the rise in the cost of raw materials - copper up 60% in under a year for example, and the downward pressure on incomes and therefore disposable income in the UK the US and Europe.
    The notion that we can export to the Far Eastern market is as far fetched as the distance involved because their economic model is based on our original industrial model of low wages, low levels of public sector workers, no free hand outs all to feeding high volumes of export. This increase in GDP then leading to low levels of taxation.
    Inflationary pressure in the UK will grow rapidly during this year and next as reduced public spending on none essential commodities will lead to a reduction in business profitability; less corporation and business tax revenue and a rise in unemployment which reduces income tax receipts and increases welfare payments and this downward spiral then continues as we are no longer able to pump cash into the economy and pay for its borrowing.
    The increased profitability, currently seen by high street stores, is a red herring due to a downsizing of high street outlets, both due to business failures; Woolworths and mergers and acquisitions Somerfield Stores purchased by the Co-op and sold on to Sainsburys, temporarily distorting the downward trend.
    A stunning indictment of bad management of this countries financial system. The now stumbling block of which has been its laughable tower of strength - house prices, requiring the Bank of England to keep interest rates on hold.
    Whos' bright idea was it too artificially inflate house prices, out of all proportion with income, so they could then loan out money against this new wealth and get rich on the interest repayments. The borrowing which then fueled a feeding frenzy of buying imported goods and holidaying abroad and the interest payments which now keep up house prices as the bonus culture looks to invest its money in a low interest and low growth economy.
    Have we been and are we still being duped by the banking system ?

  • Comment number 95.

    Stephanie: i know it would mean a lot of work for someone but could someone dig out a forecast for inflation and growth from the BoE that is proven to be right ???

    The one and only remit that Mervyn King has, is to control inflation , how many more years are we going to have to put up with him blatently ignoring the rampant inflation we are seeing on the street.

  • Comment number 96.

    "# 72. At 02:36am 12th May 2011, FlexDream wrote:

    ....If the BoE target means it needs to lower inflation, and it's tool to do that is to raise interest rates, how can it not raise interest rates?

    Why do BoE forecasts always seem to show inflation coming down at a point in future just close enough to justify inaction, and just far enough to be untestable?
    If people should save more and propery prices are unaffordable, how does lowering interest rates help?"


    I sympathize with this sentiment.

    Raising interest rates would indeed strengthen the GBP and lower imported commodity costs - I'm not sure how much and, sadly, not many people seem to be talking about it (in the mainstream media) so we're not having any debate on the impact it would have.

    The problem is, the BoE are not focusing on inflation alone (clearly !) so their mandate should be changed to either growth or economic stability or something of the sort. Or, if they retain inflation as their objective, they should begin focusing on reducing it rather than making excuses for it.

    Interest is effective in combating inflation irrespective of it's source because interest drains cash from the economy - I think they're frightened of draining demand too.

    I feel a bit sorry for King, I think he's stuck between a rock and a hard place. Kind of damned if you do, damned if you don't. I'd rather thave him in charge than someone with over-sensitive knees :D (get it ?!)

  • Comment number 97.

    @89. At 11:23am 12th May 2011, abune wrote:

    77. At 08:12am 12th May 2011, Mike3 wrote:
    @68. At 23:02pm 11th May 2011, foredeckdave wrote:
    ---------------------------------------------------------------------------------------------------------------


    "You do not improve the education of engineers and scientists by grafting on business studies modules- you simply dilute the technical content of their courses"

    -------------------------------------------------------------------------------

    I agree that grafting on isn't the way to go, and that some unis might be guilty of this just to align with the Institutes (- any chartereds out there feel free to correct this -) but the road from 'shop' to engineering management has been going for a century. I didn't include happy-clappy subjects in my list and I did refer to "more solid" BS degrees. I am happy to believe you that there are too many business grads if their programmes are largely happy-clappy, but there is real content available as well.

    On the we need more engineers & scientists my tendency is too agree (- factor endowments and all that), I think progress could have been made here if the tax payer wasn't shouldering the student grant downside, if this was held by the unis then we'd soon see what degrees were offered.

  • Comment number 98.

    #58. At 22:10pm 11th May 2011, Sir Graball De Bailoutmoney

    One word - "Brilliant"

    Regarding the blog general subject matter I will say, and I've argued this many times before;

    debt = growth

    No debt no growth, its quite simple really. Banks stop lending, government draws in spending then growth disappears.

  • Comment number 99.

    I agree absolutely with posting number 84

    This government is already shooting itself in both feet, and l wouldn't put any money on a Conservative government being re-elected in 4 years even at 50 -1

  • Comment number 100.

    I also agree with '92'. We are heading for the third world. The only thing any longer in doubt is the speed at which we arrive. I think we seem to be accelerating

 

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