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Men of letters II

Stephanie Flanders | 11:55 UK time, Tuesday, 16 February 2010

More letters today - this time between the Bank of England governor and the chancellor.

ShoppersBoth men are fairly relaxed about the jump in the target measure of inflation to 3.5%. It is probably a blip - but an unwelcome one all the same.

I would make three key points about today's figures.

The first is that, for once, the headline figure did not come as a surprise: the 3.5% rise is more or less what the analysts expected.

That's good news, because there have been so many "upside" surprises on prices in the past year, economists had started to worry that the trade-off between growth and inflation might have gotten worse.

There's still plenty of room to worry about the amount of spare capacity in the economy, and about whether the UK will be able to grow as quickly in the future as we did before.

But these figures don't provide much additional reason to fret.

There was a record monthly change in the Consumer Prices Index (CPI) between December and January (it actually fell, as you'd expect after Christmas, but by a record small amount, if that makes any sense).

But year-on-year, the core inflation measure - excluding food and energy - rose by much less than the headline rate, from 2.8% to 3.1%. The CPIY measure, which excludes VAT and other indirect taxes, actually fell from 2.8% to 1.9%.

It's far too soon to say whether higher import prices and the rising cost of energy will cause more lasting inflationary pressure in the economy. But it's pretty hard to spot right now. Especially when you consider what's happened to wages in the past year.

That's point number two: this short-term bump in inflation is going to be hit many workers harder than usual, because earnings growth is already weak to non-existent.

Though the annual rate has jumped up to 3.5%, that only tells you the change in prices between last January and today.

To get a sense of true rise in the cost of living you need to look at the average over the course of the year. Overall, the CPI measure of prices rose by 2.2% in 2009. The average forecast for 2010 is 2.6%.

So the hit to our cost of living is not quite as bad as it first looks. But it's bad enough, when you consider that average earnings grew by only 1% in 2009.

Two years ago, earnings were growing by about 4% (though in 2008, you'll remember, inflation averaged 3.6%).

In the private sector, earnings barely grew at all in 2009. As I've said before, workers' willingness to accept flat or falling earnings has played a massive role in the smaller than expected rise in unemployment in the past year.

At the Bank of England, some worry that big paydays in the financial sector - like today's, at Barclays - will distort the average earnings figures in the next few months, especially for the public sector, where so many bank employees now technically work.

If you work for a bank that is majority-owned by the government, you're now included in the public sector.

Aside from making big profits, many banks are responding to public outrage about bonuses, by bumping up employees' basic pay instead.

That could push the headline "average earnings" figure up in the first half of this year, while telling you very little about the going rate of pay increases in the economy as a whole.

If the rest of us started demanding bigger pay rises to catch up with the likes of Barclays, the Bank of England could be in trouble. But there's little sign of that yet. Quite the opposite.

So this is likely to be a short-term bump, like the other two occasions that the governor has had to take pen to paper.

But my third point would be that the Bank still has reason to be nervous about this jump in the CPI, even if the rise in prices does not become entrenched.

That's because this month's return of VAT to 17.5% may not be the last "temporary distortion" the Monetary Policy Committee has to deal with in 2010.

Many expect a VAT rise to be on the agenda after the election - especially if the Conservatives win. Depending on the state of the economy, the next government could pre-announce a VAT hike to come in next year.

But if it were implemented immediately, it would push up the headline inflation rate again, just as the last blip was still working through the system.

This is going to be a very delicate time for the Bank of England: managing the exit from quantitative easing, and reassuring the markets that they have not let inflation get out of hand.

Even if it is another blip - and underlying inflationary pressures are well under control - another year of policy-induced "blips" is not going to make that job any easier.


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  • Comment number 1.

    Interest rates are beyond a joke now, inflation well above target, another unbelievable house price boom (we won't let this happen again), looks like savers are going to end up paying for this mess, especially those of us who don't own a home.

    Heavy debt is the only way forward in this backwards morally bankrupt economy.

  • Comment number 2.

    If your currency drops 20 % within 18 months and you import more than you export(UK), inflation will go up a lot.

    I expect inflation to hit 5% by July.

    Hopefully interest rates won't follow to the same amount

  • Comment number 3.

    Thank you for your views on this matter Stephanie. I take it that you have changed your view and you are now more concerned for inflation in 2010 than you were. Although as the figures have risen everyone is probably now concerned.
    I have read on notayesmanseconomics that an ex-member of the Monetary Policy Committee is saying that we need some more inflation and that policy was wrong in 2005/06. This is disturbing because it makes me wonder what the current members of the Monetary Policy Committee think.

  • Comment number 4.

    Just a blip? Are you sure? Now I'm no economist, but I can't help thinking that the £200 bn of QE money might be expected to have some effect on inflation over a timescale of more than just one month.

    Or am I missing something?

  • Comment number 5.

    I don't understand this bit:

    "Though the annual rate has jumped up to 3.5%, that only tells you the change in prices between last January and today.

    To get a sense of true rise in the cost of living you need to look at the average over the course of the year. Overall, the CPI measure of prices rose by 2.2% in 2009. The average forecast for 2010 is 2.6%. "

    It costs 3.5% more to buy the basket of goods in the CPI now, compared to 1 year ago - what more do you need to know? The average over the year makes no sense to me.

  • Comment number 6.

    Another reason why this increase will hit us (the average UK consumer) harder than what is implied by the headline rate: we have not taken advantage of the low rates over the past year to delevarage. See this chart (the post is in Spanish but the charts are in English):
    UK and US household indebtedness

  • Comment number 7.

    There is a fundamental lie at the heart of monetary policy and it is used to create bubble fantasy economies and benefits only the bank and financial services industry.

    This is it: We are told that interest rates policy is to be set to manage inflation and on this basis 3.5 percent is very bad and should have been preceded by an increase in interest rates to squeeze inflation out of the economy. Fine, but (leaving aside that asset inflation is left out of the inflation which should not have happened) now that we have stagflation apparently the rules are to be ignored.

    These plonkers who are meant to be running the UK's monetary policy are unfit for their responsibility they and their political masters must go. We can easily swap one load of politicians fro another load of equally bad ones but the idiots who manager monetary policy remain. The governor, the mpc, the permanent secretary of the Treasury all must go as they are unfit for purpose.

    Interest rates have to rise back to rational levels all this prolonged zero interest policy is achieving in firmly embedding insane monetary and economic policies. We need to return to economic sanity PDQ.

  • Comment number 8.

    #3 Ms Jones

    Do write the other blog? Just curious, as I quite enjoy some of the articles, if not you should be on commission (or dare I say bonus)!

  • Comment number 9.

    The blog below has a video at the end of today's post. It answers the question about whether the inflation creeping into the system is indeed a blip.

  • Comment number 10.

    "2. martin hughes wrote:

    "If your currency drops 20 % within 18 months and you import more than you export(UK), inflation will go up a lot.

    I expect inflation to hit 5% by July.

    Hopefully interest rates won't follow to the same amount"

    But without rates rising to 5% inflation will rapidly move up a gear because of the absurd monetary policy, to hyperinflation and the Weimar Republic here we come! This stupidly on behalf of the Bank whose only beneficiary are the Banks must cease.

  • Comment number 11.

    Just agreeing with #5 Savour - the same basket of goods cost 3.5% more than it did a year ago, wages are up by 1% compared to a year ago - on average earners (well those still employed) are 2.5% worse off. Your average rate over the year is meaningless.

  • Comment number 12.

    Inflation is not going to be a blip its going to go up and up for at least 6 months and only reduce when it drops out of the 12 month cycle .

    Everyone thinks devaluation is great, but it a measure that shows financial confidence in this country is very low. It will be the savers who ultimately pay for the bankers / government folly.

    Our standard of living is going to drop significantly and the key question will be where are all the taxes going on and do we need existing levels of public expenditure? The answer is no, it was all a Labour Con and we are going to have to rewind Labours "Investments" and get a grip on public sector terms and conditions...

  • Comment number 13.

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

  • Comment number 14.


    Both the BBC news article and your blog post seem to have missed one of the most useful parts of the inflation data released today. Although CPI has increased (from 2.9 to 3.5%), as has RPI and RPIX (from 2.4 and 3.8 to 3.7% and 4.6% respectively), ONS also publish an indices which strip out the effect of tax changes.

    So CPIY actually fell from 2.8 to 1.9% (as did RPIY). What we can say from this is that today was actually GOOD NEWS in inflation terms. Prices have increased, but that is only because the government has increased taxes.

  • Comment number 15.

    I certainly don't share Stephanie's relaxed attitude re inflation.

    Many private sector workers accepted no pay rise or even a pay cut in 2009 and they will want something this year.

    The price of petrol and diesel has gone back over GBP 5 a gallon very quietly and certainly my weekly shop seems to have gone up noticeably recently.

    Manufacturers and retailers can't continue to discount prices forever like they did last year.

    I was in a couple of car dealers last weekend and the price of many new cars seems to have shot up by 10% or more. I wonder how many have used scrappage as a means to hide price rises?

    I made the point in the previous post in the light of the leap this month surely no one can see this month's figures as a peak but merely a continuation on an upward trend that still has some way to run.

  • Comment number 16.

    I don't notice any mention here of the huge number of retired people relying on interest from their savings, and the effect inflation has on them. They haven't been getting much interest and now their savings are being eroded. So much for a lifetime of work. If you are either greedy or lazy the UK is the place to be. Vice and virtue have swapped places.

  • Comment number 17.

    Stephanie, though I have a Stats degree I also am confused by your numbers. BBC headlines say CPI up 3.5% and RPI up 3.7%. I presume that is essentially over the last 12 months, not the annualised version of January's increase. The you say that excluding food and energy the rate was really 3.1%, and that if you exclude VAT and indirect taxes it actually FELL to 1.9%! Come on, this is gobbledegook! Then to make matters even worse you explain that you really need to look at the AVERAGE over the year, and THIS average is 2.2%! Surely the average of the monthly increases is the same as the average for the year end-to-end? I am not saying you are wrong as it depends entirely on the definition but how on earth can anyone give a considered on such nonsensical numbers?! Does anyone understand them, or do we just spout the one the that looks the worst in a sensational headline? If inflation excluding the VAT increase went DOWN surely that's good news? Please someone explain.

  • Comment number 18.


    Could you answer what is the relationship between GDP and inflation. Does higher inflation (at levels approx 5%) result in artificially higher GDP and at what point does higher inflation actually start making your GDP reduce in real terms?

    I imagine that higher (but modest) inflation does feed into GDP while people can still afford to buy higher priced goods but then growth dives if affordability drops.

    I suspect that if this higher inflation results in higher GDP it will be for a politically motivated reason.

  • Comment number 19.

    If ifs and ands were pots and pans and economists were worth more than there weight in pig dung then yada yada yada.

    excluding 'food & energy' you say. Why would you do that? we all need both of them to avoid dying. Is that not the whole point of measuring inflation. Perhaps you might exclude penny farthing oil and betamax video recorders from your figures.

    Its the poor the unemployed and pensioners being hurt the most by this inflation. Most of their money is spent on food and energy. Shortly after that the low paid - bus drivers, bin men, nurses etc. This is how you get winters of discontent.

    Shame on your blip.

  • Comment number 20.

    No.6 re indebtedness, you should read the article on the BBC site the other day re UK and US household assets - though we have the most indebtedness we also have the highest household assets. This is explained in the main by the fact we have more home owners, and more mortgages than other countries. No reason to panic about this in my view (though it makes good gloomy headlines). Focusing on the things we're doing right is the best approach to get us out of this recession.

  • Comment number 21.

    Unfortunately there are only 4 ways out of this mess for the UK Gov.
    1) Higher taxes
    2) Lower spending
    3) A period of high inflation
    4) Default

    The reality is they will have to do the first 3 at a sufficent rate to make a difference, but without creating a revolt from the masses. Borrowers will win and savers will end up worse off. Default is not an acceptable option.

  • Comment number 22.

    Stand to reason that inflation is going to rise when essential fuel is allowed to rocket once again in price,this at a time of much lower oil prices than a year ago,these costs effect all of us from the top to bottom but especially the less well off,still this government has no feelings for us in the lower bracket and never has done,savings? what a joke,what is the point? I am spending mine now as because of almost zero interest rates,I loose out by saving.

  • Comment number 23.


    Can I draw your attention (and you readers) to your blog of 17th February 2009 exactly a year ago when the inflation figures were published.

    "The CPI (Consumer Prices Index) measure of inflation fell to 3% last month, and the Bank of England now expects it to fall close to zero by the middle of next year. But they don't rule out the possibility of a negative CPI. And they see little chance of CPI above 2% before 2012."

    Hmm, the B of E and you got that very wrong. Are we not in danger of heading towards Stagflation?

  • Comment number 24.

    '''''Many expect a VAT rise to be on the agenda after the election - especially if the Conservatives win.'''''

    And we all know the reason why they will have to raise VAT, the criminal mismanagement of the countries finances by Labour.

  • Comment number 25.

    Liked you summary Stephanie.

    My more particular concern is with potentially rising prices/costs within the manufacturing engineering supply chain, this combined with the up-pull in international metal and raw material prices.

    Loss of specialist engineering suppliers (thereby reducing competition in the supply chain) as a result of the crisis, plus an increasing dependency on imported semi-manufactures and components means higher input costs, and consequently this could could hit lead engineering companies quite hard as they start to expand output. As an aside thank god for their cooperating workforces!!

    This latent cost threat, taken in harness with rapidly rising global material costs, could make UK engineering producers less competitive. A situation made the more precarious when one turns to the cost and availability of capex funding. For how are UK engineering companies supposed to become leaner and raise their productivity (reduce production costs) if they cannot raise finance at affordable rates to buy new machines?

    These are the sort of micro-detailed inflationary issues that politicians need to address if they want engineers to gain greater share in increasingly competitive world markets, and the CBI and EEF should be pressurising them to do so.

  • Comment number 26.

    I also don't understand this bit:

    Quote Stephanie "Though the annual rate has jumped up to 3.5%, that only tells you the change in prices between last January and today.

    To get a sense of true rise in the cost of living you need to look at the average over the course of the year. Overall, the CPI measure of prices rose by 2.2% in 2009. The average forecast for 2010 is 2.6%. "

    Stephanie, If this is a mistake, fantastic, you have proved you are human. Own up to
    it (unlike the Government, the FSA, the Accountancy profession, the Bank of England) and correct it.

    If it is not a mistake, can you blog again and explain it.


  • Comment number 27.


    As you state, if this is a temporary blip, then the news is less bad than seems apparent on the face of the bald 3.5% inflation figure. Based on the VAT increase taking 12 months to work through the inflation number, then it could be more than this month's number, which is affected.

    Fuel prices, which are also an input price to food have risen 70% over the last year and have not yet stopped rising, so will continue to affect the inflation number through the year. This would be much more problematic indeed.

    It is fair to say that the slack labour market will keep downward pressure on wage rates for some time to come, if yesterday's CIPD review is to be relied upon, so preventing pay rises having an adverse impact upon inflation.

    The £sterling has also risen above its recent lows on the exchange markets thereby reducing the amount of inflation imported; probably another major contributor to food price increases through fruit and vegetables from €uro zone economies. The inflationary effects of QE, if there are to be any, are yet to be observed.

    Downward pressure on oil prices would provide the biggest benefit to inflation and the economic recovery.

  • Comment number 28.

    The sterling has depreciated against the currency in some developing countries. So it is more expensive for British purchasers to buy product from overseas market. When I visited big department stores several years ago, the cashmere and woollen sweaters are very cheap. Now I cannot easily find many woollen or cashmere sweaters for me to choose from. And the cotton sweaters are at same price with the woollen or cashmere sweaters two years ago. From this observation, I find that the price of clothes has risen. In my present living town, the asking price of house is higher than that of two years ago. But the salary expectation can only be lower than that of two years ago. The sterling is at recovery. If the clothes price raises further or keep at level as present, and people cannot get a job or get salary raised steadily, and the British shops do not like to use the methodology of frequent discounted sales. For a cautious person like me, I would be tight in catching up with fashion. Then the banks might not increase the bank rate for deposit of saving so as to encourage people to spend more money for consumption.

  • Comment number 29.

    Well at least Stephanie's blogged on the inflation numbers but not quick enough for me to comment on her previous blog entry.

    Good to see a number of people again questioning Stephanie's torturous route to give another shining gloss on something that should be more worrying. It is now clear why QE was paused. They are clearly worried it is feeding through into inflation.

    Reading through MK 's letter one could be forgiven that you were 'Alice in Wonderland' at the tea party. There's no appendix actually explaining what is going on in summarised form. There's some wishy/washy explanations which seem a little trite.

    I thought that the MPC sat down pouring over data and models and then by a detailed analytical process come to the forecast or the explanation for divergence.

    On reading the letter it would seem more likely that the MPC sits down to have tea and biscuits and then plays 'pin the tail on the donkey' complete with blindfold. They seem to be displaying all the same 'asleep at the wheel' signs as the FSA did.

    Please note the MPC's statement regarding inflation returning to 2% later in the year states 'more likely than not' which is a serious hedge in economist speak. So I think 'blip' is a little complacent.

    Before we get carried away with 'inflation's alright' myth - remember it destroys jobs, savings and pensions (the vast majority) and causes problems for SMEs and public sector with regard to wage increases.

    If sterling continues to depreciate this would also cause problems as also the likely further rise in VAT to help close the budget deficit. I presume this has been factored in?....mmmm.....

    Also, for example, the NHS - inflation hurts because of the purchase side which puts further presure on balancing the books (similarly universities etc). So be very careful when we say inflation's ok.

    If the government is now working to an unwritten agenda that 3% - 4% is now ok then they should say so on record - at least we wouldn't have the silly MPC charade and an explanation could then be debated (as opposed to cloak and dagger).

    Stephanie - you're an economic journalist, the comment 'both men are fairly relaxed' is about as amateurish as you can get. If somebody in your position isn't asking the questions, WHO IS?

    I am deeply unhappy with the explanation so far. The MPC in recent times hasn't been too good with forecasts and the government has been much worse. i.e. their track record stinks....and you're ok with that?

  • Comment number 30.

    16. At 1:19pm on 16 Feb 2010, Maimonides wrote:
    I don't notice any mention here of the huge number of retired people relying on interest from their savings, and the effect inflation has on them. They haven't been getting much interest and now their savings are being eroded. So much for a lifetime of work. If you are either greedy or lazy the UK is the place to be. Vice and virtue have swapped places

    This is a very good post, I could never get my head around the biblical story of the prodigal son. Why should a waster be put in front of a good son. I know forgiveness is the key to christian beliefs, but how many times do you forgive people who commit the same sins over and over again.

    The financial collapse proved that the people who live in(on the) never never land were wrong, so why are the government and the bank of England trying to drag us back to that false economy ?

    Surely thrift and hard work should be paramount in any financial system ?

    I have never known the good people of this country to be punished so much by the usurers. We all said if you print to much money it would put up inflation...did no one listen.

  • Comment number 31.

    If inflation is 3.5% then surely the base interest rate should be 5% rather than 0.5%. Is this an incentive to save or an opportunity for the banks to stuff people with 18% interest charges?

    I cannot see the argument that inflation is but temporary. The two big cost elements in the budgets of most people such as fuel and food are going up steadily week on week. This is not unrelated to the exchange rate for sterling against most traded currencies.

    However, there is also evidence that some food retail prices such as butter and bread are going up when the wholesale prices are going down. Every little bit of extra profit helps, perhaps?

    As for wages these are in the main economy completely stagnant. The prevailing public sector average is I am told 3.79% for 2009. I very much doubt if that will hold next year.

    So unless you are a banker or a speculator, poverty and hard times beckon. Some honest government would be nice!

  • Comment number 32.

    So Merv the swerve is going to write to the chancellor ? Presumably this is to tell him the economy is knackered and nothing either of them is doing is going to help. The pound was effectively devalued by about 25% over the past two years, but we are still struggling to export. The Euro is in what looks like desperate trouble, but is still able to maintain position against the GBP. This demonstrates how much confidence the foreign investors have in our government's ability to get the economy running again and make the pound worth buying.

  • Comment number 33.

    When the interest rate is kept similar as present, the industries will feel less burden to borrow more money as investment from the bank and thus bring alive the companies struggling at the past recession. When the industries become more prosperous, the country can become richer, and the sterling might appreciate against foreign currency. The clothes in shops will become relative cheaper comparing to the salary. Then people would like to satisfy their shopping spree occasionally. I would be happy to imagine that there would be more customers in the department stores every day, and it will be easier to get a good job. By that time, there might be real inflation, and the bank might raise the interest rate. My writing here is only from the perspective of Britain purchasing goods from foreign countries, and have not taken into account of the advantage of exporting from the depreciated sterling.

  • Comment number 34.


    This inflation rise is not a blip. It is part of a long term inflationary trend which has been disguised in as many forms as possible, but can no longer contain itself.

    The BofE would have us believe it is a blip because they don't want the man in the street to join the dots together and realise that in a country with a Fiat Currency, which is not supported by anthing else but fraudulent credit ratings (no idea who anyone can justify giving the UK a AAA on sovereign) where the printing press has been allowed to run overtime, all roads lead to inflation.

    This is not a blip, it is BofE and government incompetence.

  • Comment number 35.

    Can anybody give me advice out there? My mortgage is 2.5 above the libor rate so i,m paying about 3% at the moment.I have a ccj and bad credit rating against me.I,m looking for a fixed rate before interest rates rise or is my only option is to stay where i am and hope rates stay low for some time?

  • Comment number 36.

    'Many expect a VAT rise to be on the agenda after the election - especially if the Conservatives win.'

    Is that a fact?

    So, if Labour win, what then?

    I venture to suggest that after the election a series of measures will be adopted that, as yet, remain well camouflaged as the parties have no desire to spook the electorate with the realities.

    A dangerous game in these fast moving times.

  • Comment number 37.

    Re the average inflation during the previous year -

    If your annual pay review is due in September (like the date for determining pension increases), then assume that the annual inflation rate in each month from the previous Oct to August was 5%, but due to tax changes, a flood of cheap imports and cheap summer food, the Sept rate was 0%. Would you accept a 0% pay rise because that is the annual rate in the determining month, or would you want something close to 5%, which represents how much more it has cost you to live in the previous year?

  • Comment number 38.

    The only inflation figures that matter are the ones that affect the important people of the nation, the ordinary men and women that are the taxpayers. In other words, the inflation measure is what it cost them to get through last month compared to what it costs them to get through this month, which must include food, energy and housing costs. Measuring in any other way is a meaningless exercise which will only benefit the smoke and mirror financial manipulations of inept politicians and their discredited economic advisors. Roll on the general election.

  • Comment number 39.

    Am not so optimistic that inflation will go down towards the end of the year. This is because imports are getting more expensive in view of a weaker pound and there is likely a further increase in taxation ahead irrespective of who wins the next election. For instance if a VAT rise to 17.5% were to blame for at least part of the recent 3.5% inflation what about a further rise to 20% if it were to be implemented? On the other hand, employees may have so far accepted in effect lower pay but in the future they will demand pay rises in line with inflation. So prices will reflect not just a weaker pound but imported inflation too! May be the Bank of England is counting on withdrawing quantitative easing which was artificially inflating money supply as a counter measure but given the impact of likely reduced net disposal income on spending and hence growth this unlikely to happen in a dramatic way whci means inflation is likely to continue for a while. Also, investors are unlikely to keep their money in saving accounts that give hardly any interest and will probably move to invest in alternatives such as gold or worse buy houses that would further inflate their prices risking another future housing crash and possibly banking crises since mortgages are provided by effectively state own banks, i.e. taxpayer guarente.

  • Comment number 40.

    17. At 1:20pm on 16 Feb 2010, tonbar wrote:
    "Surely the average of the monthly increases is the same as the average for the year end-to-end?"

    Stephanie is correct Tonbar. If you take the maths concept of reductio ad absurdum, say the inflation rate is 2% for 11 months and suddenly jumps by 10% (ridiculous I know). The averages added up to the year do not become 10%.i.e. 32/12 does not equal 10%! It is between 2-3%.

  • Comment number 41.

    All those calling for a rise in base rate might well first of all do the following : (1) Read the latest BOE Inflation Report (2) Realise that raising base rate will have NO effect whatever on price spikes caused by rising VAT and oil prices (3) Consider the adverse effect a rise in base rate would have on already weak lending to business (4) Wait and see how spending cuts and tax rises after the election, whoever wins, will deflate the economy (5) Take into account the fact that the banks are already charging an arm and a leg for credit anyway as they profiteer - sorry, repair their balance sheets. Caledonian Comment

  • Comment number 42.

    More BBC spin trying to pacify the serfs not to worry. We have rising unemployment and people aren't spending yet Inflation has increased markedly. If 3.5% is the 'official' figure then what is the real figure. Savers in Sterling fiat currency are going to pay a big price as the Government tries to inflates the national debt away. Saving in real assets (land/precious metals etc..) will help protect against the storm of Inflation on the horizon.

  • Comment number 43.

    Last week I don't remember Mr King saying anything other than he thinks we will get a peak blip of 3.5% and then falling to below 2% target (by the end of the year).

    Some of his speech was here:

    Did he mention the racing certainty that the next government will be putting VAT up to 20%? of course not. This will add another 2.5% to most sales, making the likelihood of falling below 2% much reduced.

    But as its not his job to speculate on political decisions about VAT, he just blindly ignores it and plods on with speeches that we'll replay on these blogs in a year showing how far off his statements proved to be.

  • Comment number 44.

    Look Stephanie, inflation is out of the bag, you know it, I know it, even the Governor at the BOE knows it, but won't say. As that wasteral from America Mr Alan Greenspan said in 1966 - "The financial policy of the welfare state requires that there is no way for the owners of wealth to protect themselves". Savers of the UK should be afraid, very afraid, the Governor at the BOE wants all their money. There are troubling times ahead. We should perhaps withdraw our money in cash but he will still destroy it's value with his friend inflation. Lets inflate away debt and destroy the nest eggs, why should the prudent be protected. Never did we deserve such a bunch of losers to run the country. Politically and financially.

  • Comment number 45.

    I will put my advice hat on.

    Firstly post 18 I am surprised that no one has helped you out. You are getting involved in an issue of nominal and real figures.

    Higher inflation will give you a higher nominal GDP figure as prices rise the total output and spending will rise in pure numerical amounts. If your income grows by the same amount then your income is greater and GDP is greater in nominal terms but not in real terms.

    In other words whilst you have more money you actually cannot buy anything more.

    During periods of high inflation those with debts tend to do well as the real value of their debt reduces as inflation works away at it. However those on fixed incomes such as pensions or with savings tend to do badly.

    Post 35 to be very honest with a ccj and a por credit rating you will almost certainly not be able to get as good a deal as you are on at the moment. My best advice would be to satisfy and this nullify the ccj, assuming you can afford it and take as much actions as you can to improve your credit rating. Both will have a huge positive impact in your "attractiveness" to any future lender.

    There are a number of free information sites such as the Money Expert one run by Martin Lewis or Citizens Advice can help or at least put you in touch with people that can assist you without it costing you.

    A few simple steps could improve matters immensely for you.

  • Comment number 46.

    Mervyn King should know what is happening with inflation.

    If some people think he's being a bit too relaxed with his forecast for inflation falling later in the year - perhaps this is because he's know's that interest rates are going to have to rise - probably later this year - in order to e.g. defend the £ sterling.

    Mr King probably always knows a lot more than he says publicly - if interest rates are to rise that may have a dampening effect on general price inflation although the fallacy of a stronger economic recovery etc as forecast by Darling and Brown - 3% annual GDP growth? appears to be nonsense under this scenario.

    There is and underlying strategy with all of this - and it seems to me that this is to conceal what is really happening with the UK government finances and economy, until after the general election.

    The thing that worries me about this strategy is whether it is coming from BoE as well as No 11 Downing Street - as it appear to be more political than economic, at the moment.

    The final question how much will interest rates have to rise later on this year? Looks very uncertain as a lot can happen in the intervening period - but I am expecting a quite a big rise say, 1% - 2% on base rate, straight away, on the first increase.

  • Comment number 47.

    Stephanie: "might have gotten worse"

    ....pardon? In English please.

  • Comment number 48.

    The UK is hanging out in the wind at present, waiting for the panecea to appear. For the next several weeks we wait with bated breath the result of the election - let's hope the hoi polloi vote with some sense!! It's probably a foregone conclusion that tax will rise and some individuals will lose their employment, or even face a reduction in employment benefits. We are entering a period of stagflation as we have no control over the price of the raw materials that keeps the UK ticking.

  • Comment number 49.

    #1 Si_555 wrote:
    "Interest rates are beyond a joke now, inflation well above target, another unbelievable house price boom (we won't let this happen again), looks like savers are going to end up paying for this mess, especially those of us who don't own a home."

    You have no need to worry about a continuing house price boom.
    The only reason we have seen movement in house prices in the past few months is because investors have been buying new builds to rent out, the returns have been slightly better than investment interest rates.

    Fact: Quantitative Easing causes inflation, to kerb inflation you put up interest rates. Any interest rate rise, which is inevitable, will stall house sales.

    Back when mortgage rates were 8,10 & 12% the odd couple percent increase didn't make much difference. But you wait and see the carnage as a result of 1% or 2% rise on a 3% mortgage.

    It is still extremely difficult for young buyers out there to get mortgages. Even if you are lucky enough to have a steady job, mortgages are virtually non existent without a 20% or 30% deposit. Self cert mortgages are non existent for self employed or company owners. There is still no liquidity in the market at all. I'm afraid we are stuck at the bottom of the trough!

  • Comment number 50.

    The inflation percentages are based on the changes from 12 months before.
    It doesn't make sense to average the % for this kind of comparitive rate.

    Think the price of a loaf of bread, it starts at 100p, goes up 1p a month for 11 months and goes up 5p in month 12, it now costs 116p. Thats a 16% increase and nothing else. Saying it only cost you 107p on average over the last 12 months still doesn't alter the fact that it will cost you 116p now, and presumably in the future too.

  • Comment number 51.

    Governmental policy and the banking/financial services world have little to do with the average citizen yet they are burdened with the results and actions. The QE, bail-out, whatever one calls it, was directed, not general. With the money going to the banks, and we all see they are doing well, there was nothing to assist the citizens, the onces who lost substantial personal wealth. The inflation is based on nothing real. Individuals are saving not spending, so what is driving up prices? The banks are not lending money, so what is driving up prices? Those who control energy can do what they like because people have little choice but to pay. Japan looked at a similar problem and went the way of deflation, to correct for the bubble created higher prices, and now appears to be turning things around. Something needs to be done to make the money of the middle class worth more if a recovery is going to happen, but with the bankers and government taking so much off the top that is unlikely to happen. Greed and power a combination for diaster.

  • Comment number 52.

    #29 rugbyprof

    Nobody has been selling "inflation's alright". The myth is in your perception. Stephanie indicates above that the current figures are not without risk.

    Inflation is at present substantially below the 15% experienced under the government of Margaret Thatcher in 1981. There is a much smaller difference between a temporary 3.5% rate and deflation, than there is between today's figure and the galloping inflation rates of the early 1980's. The CPI inflation rate between 1988 and 1992 averaged above 7% and went as high as 8.5% in April 1991. Only the recession of the early nineties brought it down briefly to 2.5% in October and November 1992. It was above 4% again by December that year.

    Stephanie points out above that wage inflation is subdued. Unemployment will keep it so. Ever heard of the Philips Curve?

    Sterling has begun to steady and appreciate over the last year. It is currently much nearer to the highest point of the last 12 months than the lowest compared to both the US$ and €uro.

    The Governor and the MPC's job is to keep inflation within the target range and as close as possible to the 2% target over the medium and long term. As the Governor in his letter and Stephanie have already explained on this website on earlier blogs, the VAT increase will have a temporary effect on inflation for the duration of this year. This "technical" increase, caused by the previous fixed period VAT reduction emergency measure response to the largest recession since the 1930s. The other main contributory factor has been the oil price increase.

    Neither the government, nor the Bank of England's MPC have the policy levers to effect an immediate change on the rate of inflation at the snap of their fingers.

    Stephanie's advocacy of an inflation rate target of 4% has merit and is very modest and more monetorist, compared to the inflation rate policy under previous Conservative governments.

  • Comment number 53.

    the only people to suffer from higher inflation are the poor and pensioners because they can barely afford to pay their bills at the moment with no hope of a decent wage or pension rise and rip off savings rates applied by the money people,the poor and pensioners should wake up to the fact that we are only here to spend what little we have.

  • Comment number 54.

    What happens within the Eurozone may be very relevant. Higher interest rates here relative to the Euro could see quite a change on the exchange rate, which might alleviate some inflation and get us more for what we manage to sell to Europe. That is of course if the Eurozone can show some growth, which may be difficult if they start to bail out the PIGS and even more difficult if they don't.

    Either way we are all going to feel poorer with either directly less disposable income ( even if we keep our jobs or business afloat) and/or the fact that it just won't buy as much. Especially if the recently touted rise in VAT to 20% after the election turns out to be true.

  • Comment number 55.

    Frankly it is unbelievable that the BOE and the government seem to be doing absolutely everything in their power to increase indebtedness. The fact house prices have been rising again (from their ridiculously high levels - especially in the brain dead south east) and the VI's in the media are making this out as good news is utterly ridiculous and thoroughly destructive to the future of this country. Every young British professional I know is desperate to leave the country and make a career somewhere where they can afford more than a one bedroom slave box on a 40 year interest only mortgage. Raise interest rates now Merlin!!

  • Comment number 56.

    3.5, 1.9, 2.4 whatever. Keep playing with the figures all you want to try and fudge them into saying whatever you want. However, when you start talkig about inflation then you are now in an area where the general public actually feel what is happening. Consensus appears to be that people percieve pices to be rising whilst their wages and benefits remain fixed at best.

    Now add to that sad reality the expectations that unemployemnt is going to rise during 2010; that banks will pay big bonuses whilst not 'understanding' the public response; that Base Rate appears to have no relationship to lending rates (if you can get a loan); that credit card providers just keep milking an under-noourished cow and you have a potentially lethal mixture.

    As with some others above I believe that we are in Stagflation. Though contrary to some other opinion that we just have to accept the fact and bear the pain I can forsee a more radical response as the teeth bite deeper.

  • Comment number 57.

    Foreign demand for US Treasury bonds and notes fell by a record amount in December as China reduced its holdings.

    China cut its holdings by $34.2bn - meaning it is now the second-biggest US debt holder after Japan.

    The drop in demand may mean that the US has to pay more to borrow, just as the government has to fund a record budget deficit.

    Its bond holdings amounted to $755.4bn in December, down from $789.6bn the previous month.

    China has previously questioned whether the US bonds are safe and whether it can sustain its deficits. It has also questioned the US dollar's role as the world's reserve currency.

    Now tell me that government's operating deliberate policies to devalue their currency does not have any downside risks.

  • Comment number 58.

    Some of us will not get a pay rise this year. Some of us didn't get a pay rise last year. I haven't had a pay rise in about six years, and some of my colleagues haven't had pay rises for about ten years. We do get "bonuses" in some years, but these are performance-related, and guess what: overall performance for our employer hasn't warranted general bonuses - just executive and sales bonuses.

    To understand how most ordinary people have to live, you need to work out the compound inflation for the last five years or so. It's about 8-10%. This is pretty painful for most, but is disastrous for those depending on savings to supplement their state pensions.

    This regime (government politicians, civil servants, bankers, other financial institutions) has been reckless, and the ordinary people will pay for it.

  • Comment number 59.

    Firstly, I dont believe inflation figures, they are just an average for some unaverage person. Recently I took a bus journey, less than a year ago that cost me £3, now its £3.90. Now my maths are not great but that sounds like nearly 30% inflation to me. Whats more my inflation proof pension rose by 0% this year.

    So I say welcome to the real world of real inflation.

    What's more this may be seen as a blip, but we all seem to forget that we still have at least 6 months of a (supposed) deflationary year to work through the system.

    I agree (and in some ways hope for my pension increase) with other posters that inflation will be 5% by September.

    These letters are meaningless from people who don't live in the real world.

  • Comment number 60.

    Ain't it funny. Banks won't lend to us because we are too gret a risk for them to contemplate. But because they took too great a risk that they couldn't manage and were 'bust', we had to bail them out!

    NO it isn't funny, it isn't even sad, it IS plain stupid. WE must put the bankers (and hence the bankers) back in the little box where they belong. All they do is deal in money yet the try and convince us that they actually create wealth - they don't. If you add up all of their notion of wealth it bears no reltion whatsoever to the tangible and intellectual resources that it is supposed to represent. Hence their concept of wealth is a farce. It is a con. It is merely a collection of zeros.

    Ah but where would we be without them? Wll i believe that we would invent new structures PDQ and maybe we would regulate the processes better.

  • Comment number 61.

    fleche-dor wrote #52

    'Inflation is at present substantially below the 15% experienced under the government of Margaret Thatcher in 1981'

    The tories inherited runaway inflation from Labour in 1979 (as I'm sure you know) and cured the problem after 2 years through tough responsible decision making. Just what we need right now.

  • Comment number 62.

    'This is going to be a very delicate time for the Bank of England: managing the exit from quantitative easing, and reassuring the markets that they have not let inflation get out of hand.'


    1975 24.20%(CPI)

    Thanks Labour - Thanks a bunch - the most disgraceful stat in UK economic history ...(well almost!)

    Ouch! I remember that one - made a big dent in my pocket money!

  • Comment number 63.

    Miss Stephanie YOU wrote

    '...the jump in the target measure of inflation to 3.5%. It is probably a blip - but an unwelcome one all the same.'

    The obsession with low inflation is totemism gone mad. Let's all dance around the pole of LOW INFATION...or should that be limbo dance under the NUMBER TWO PER CENT...and break our backs in the process.

    Yes, I know the effect inflation has on prudent savers - and I'm one of them.

    Punishment has been meeted out already on :

    equity via bankshares' price declines ;
    on most bondholders ;
    to an imprecise extent (in the long term anyway) on the taxpayer ;
    on the rising unemployed ;
    on firms large and small.....

    WHY oh WHY should the holders of the Asset Class 'money' (which include multimillionaires ) not share in the Democracy of Pain ?

    WHY ? WHY ? WHY ?

    I tell you why ! Because a few years ago some brilliant minds in Govt and the Treasury thought of a NUMBER.

    A mere NUMBER Miss Flanders...a stupid, abitrary NUMBER.

  • Comment number 64.


    First congratulations on your previous two blogs about Greece which (in my view) are exceptionally informative and perceptive.

    With regard to inflation there are a few extra points that need to be made though.

    While the CPI is fine to use as a measure for the Monetary Policy Committee to be given as a target (because it excludes the impact of interest rates on housing costs), it is surely the RPI which more affects the real world economy.

    It is the RPI relative to wages which determines spending power and it is RPI which is used in most wage agreements and negotiations. So when talking about the liklihood of interest rate changes consider CPI but when talking about the rest of the economy it is RPI which counts.

    The other point is that economists (including you Stephanie) have a bias about inflation targets - not caring when it is above target, only when it is below target. For example when inflation is too high they keep saying "if only ..... petrol prices had not gone up; bank salaries had not increased as much; the exchange rate had not deteriorted; VAT had not gone up; then the inflation rate would be on taget." But they do not refer to the things that went down but could have risen and thus kept inflation from rising even higher. Economist should learn to deal with actual inflation and not the "if only" inflation figure.

    So economists (like Stephanie) give the impression that we should be targeting a certain growth rate regardless of the inflation rate. If so make the case, but when analysing hitting inflation targets don't wave away excess inflation as not mattering because of a bias towards a hidden belief that it is growth that should be targeted.

    Given the sharp ups and downs in inflation (RPI or CPI) it would be better to convert the 2% target into the equivalent indices and ensure that monetary policy is set to get the indices back to where they would be if there had been a steady 2% increase year after year after year.

  • Comment number 65.

    as many of the previous bloggers have stressed, RPI and rate of inflation (underlying, stripped or otherwise) have been (dare I say it) massaged into the unreality of those who can afford massages at dayspas!
    The reality for people living on fixed or reducing incomes (pensioners, people on benefits, private-sector employees) is that food and fuel price rises and council tax hikes have brought many of them into fuel poverty and situations where it is impossible to manage financially. Any rate of inflation is a nonsense when you are living on the poverty income of £165 per week. YOU JUST CAN'T MANAGE. and price reductions in clothes, white goods and other "non-essentials" are totally irrelevant. I cannot see fuel, food, council tax and (the unmentionable) the BBC license fee dropping in absolute terms over the next few years (yes this license fee as a percentage of poverty income is about the same as the quoted rate of inflation). So people on fixed incomes and people with savings are being squeezed by government refusal to tackle the big problems.

  • Comment number 66.

    The government, BoE, 'banks' contributors on this blog and even BBC economics editors know that things are worse than can be said to those... poor wretched payers, those with mortgages and/or credit card debts and/or baliffs at the door; those struggling with families, senior citizens and those on JSA .........

    If only they knew what is coming.....


  • Comment number 67.

    #52 fleche_dor

    What is your point?

    Would you please read the latest report at ONS:

    There are some pertinent points that can't just be explained as a blip.

    Further as I and a number of others have pointed out the MPC statement that it might fall back to 2% doesn't take into account likely scenarios that include interest rate rises and further VAT rises as a consequence of the economic hole we're in. So these explanation comments are pretty redundant and very guarded as I previously commented.

    And there is considerable more downside than upside risk re sterling.

    Also your take on history is shall I say somewhat tainted and inaccurate.

    Here's some CPI facts:
    Labour 1974-1979 (%)
    8.30 (VAT first introduced at 8%)

    Conservative 1980-1995 (%)
    (after election victory in 1979 VAT increased to 15%)
    4.30 (VAT increased to 17.5%)

    So fleche_dor be very careful when quoting figures...

    Please also bear in mind due to the economic issues since the 70s through to late 90s interest rates were much higher averaging around 9-10% in relation to these inflation figures.

    Base rate currently is officially 0.5%. I'll leave you to work out the implications.........

    And I'll repeat if the government and the BoE have now adopted an inflation rate of 4% then they should announce it with the implications it suggests - not left to some covert gentleman's agreement - it's the worst use of power.

    Otherwise the MPC letter re 2% is just a charade and simply not good enough in the circumstances which is why I made the observations and questions previously......

  • Comment number 68.

    nautoner #62 wrote

    '1975 24.20%(CPI)

    Thanks Labour - Thanks a bunch - the most disgraceful stat in UK economic history ...(well almost!)'

    I think you'll find that one being trumped by budget deficit 2010 12.6%

  • Comment number 69.

    61. At 4:18pm on 16 Feb 2010, jobsagoodin

    This post seems to suggest a rather one sided view of history based on a predetermined political view. The political and economic story of the 60s and 70s is an interesting one and choosing 1979 as a starting point to make a political point is spurious and could be easily countered by indicating, for example, that inflation reached 25% at one point during the Heath conservative government and was almost halved by the year Thatcher came to office (I am not suggesting this is any more useful, just a different view).
    Whilst it might seem reasonable to expect that spending would have been a little tighter under a conservative government (though perhaps more likely the priorities would just have been different) it seems somewhat phoney to suggest that the overall economic situation would be a whole lot different. Are we suggesting the conservatives would have favoured a transition away from finance and back to ‘real’ manufacturing over the last 10 years?.
    The current issues, and certainly the solution, would seem to transcend the really somewhat limited differences between the two main parties and this discussion would be all the better without political dogma.

  • Comment number 70.

    There is so much confusion in these posts, with some clarity

    QE is printing money, although unlike the Weimar Republic, the money will be taken out of the economy again, so if the timing of this is good, it will not necessarily be inflationary

    This decision, is the very crux of where the balance lies between creating inflation, and causing a depression (where GDP shrinks by 10%)
    Without QE and 0.50% interest rates, it is almost inconceivable that we would have avoided a depression

    It is still a possiblity that we will lose 10% of GDP, in a double dip recession, so this is in Mervyn King's mind, along with the need to keep inflation in mind too

    Higher inflation will not be driven by higher wages, as the private sector is going to see marginal growth, if any, and the public sector is going to have to wake up and smell the coffee at some point

    During this recession, whilst Gordon Brown talked of slimming down the Public Sector, it has actually got even bigger!! (I don't mean through technically counting bank employees either)

    Whoever wins the election, we are in for a terrible two or three years, whilst the huge hole caused by Labour's ineptitude needs to be filled

    David Cameron is trying to precipitate a reduction in our credit rating before the election if it is going to happen, and if you think it is scary now, wait and see what happens if we lose the triple a rating

    The fact the election is looming is causing an 'everything on hold' factor to a degree, and the only thing worse than Labour being re-elected would be a hung parliament

    George Osbourne tried to be honest, and was pilloried for talking about an age of austerity, so people can't have it both ways. They say they want honesty, and when they get it, they shoot the messenger!

    Interest rates will not increase above 2% for 3/4 years, as people would not be able to sustain rates higher than that with the coming tax increases

    To the poster who said the next increase in the base rate would be 2% in one go...have you been advising Gordon 'Teflon' Brown since 1997

    What happens to the Piigs(Portugal/Ireland/Italy/Greece/Spain) and consequently the Euro, will be enough to force France and Germany to face up to their responsibilities, which will cost them hugely

    We do not need to contribute financially, not being in the EUROZONE, and we should make the point that we will not be

    Hopefully those that still think we should be in the Euro, can see the folly of this view

    Vat will be 20% from next year, mortgage funding will dry up, which will stop the current rise in house prices, caused entirely by pure supply and demand

    The most relevant stat is that CPI with taxation increases stripped out is 1.90%, which means that Mervyn King only has to write to Darling, as Darling has caused inflation to rise above the threshold!

    I hope Cameron wins with a majority, and would like to live long enough to see Gordon Brown finally admit he destroyed our pensions industry, and that his phoney reputation as intelligent and prudent are corrected

    Sadly(off topic a bit) the only member of this Government with any credibility, honour and intelligence, was Robin Cook

    It could be worse, so much 2012 the Olympics will start the next boom....

  • Comment number 71.

    I accept this inflation increase is a blip on top of the effects of the precipitate exchange rate fall in 2008 working through now. Whatever my fellow posters say, there is little if any chance nominal interest rates will increase before the end of 2011. The economy is too fragile to do any different. Many of my fellow posters show a surprising faith in the monetarist idolatory that interest rates have to rise to calm inflation. If, as you point out, there is spare capacity in the economy and unemployment is poised to rise then raising interest rates will just screw any growth. The fact is that we had all better get used to more pay freezes, higher VAT, higher inflation imported through weak exchange rate and high global energy prices as the BRICS recover. All of this will confer a much lower standard of living spread widely. The question remains have we got a leader that can tell us this like it is and can we as UK citizens take this reduction in standard of living, which is the price of the asset price boom. Higher interest rates fed through to mortgage repayments may prompt more forced sales, implosion of the currently reflating property asset prices. This would in turn potentially harm bank balance sheets as asset prices would again tank. You have to feel sorry for the onshore pensioners dependent on interest to eke out their pensions. But then they're not bankers who we allegedly risk losing overseas - the pensioners talent was to see us through WW2 and post war auterity and protect our freedoms. Shocking really.

  • Comment number 72.

    History tells us what we might expect if Conservatives were in control instead of Labour. Those with long memories will recall what the first Conservatives Budget brought us in 1979 and 1980.
    They'd vehemently denied in their election campaign that they'd "double VAT". They only increased VAT by 88%.
    They also increased Excise duties on tobacco, beer & spirits way ahead of retail prices, and to ensure the working classes paid a lot more tax. And they held duty back on wine and on Cider. Cynics noted that both products were launched into a sales boom and their Tory Mr Bulmer MP did well out of that.
    Salaries of top civil servants were increased enormously and, some said, as a reward for their support in the election campaigns. Spending on the unemployed, NI pensions, housing, NHS, schools, railways and other infrastructure were deeply cut.
    Consequently both inflation and unemployment % rates soared well into double figures. That created widespread civil stife and chaos as our economy stagnated and the rich got richer at everyone else's expense.
    They're promising the same emergency measures for this summer.

  • Comment number 73.

    #67 Rugbyprof,

    Doi'n it gain hey Prof!

    Now do be careful with your stats they really do need to be put into context. Pot and Black mate!

  • Comment number 74.

    68. At 5:02pm on 16 Feb 2010, jobsagoodin wrote:

    nautoner #62 wrote

    '1975 24.20%(CPI)

    Thanks Labour - Thanks a bunch - the most disgraceful stat in UK economic history ...(well almost!)'

    I think you'll find that one being trumped by budget deficit 2010 12.6%


    Yes - let's hope it doesn't get much worse than that!

  • Comment number 75.

    #61 jobsagoodin

    Inflation was already high in the early 1970s before Labour took over (16% in 1974).

    Most economists and rational people are of the opinion that this was due to the oil price spike caused by OPEC and the Middle East conflict of the early 70's. Inflation in the 70s was not a phenomenon unique to the UK, or the Labour government.

    Unless it had slipped your memory, Margaret Thatcher was elected in 1979, so had been in power two years already with inflation still at 15%.

    #62 nautonier

    The inflation rate you quote for 1975 was due to factors before the labour government took over. The rate was reduced to 8.3% by 1978 under Labour and shot up to 18% by 1980, under the Conservatives.

    Neither Labour nor the Tories may claim anything like a spotless track record on inflation. The Bank of England and the MPC have the best record, including the response to the current recession.

    There is no room for complacency, but frivolous, futile, and fractious criticism of economists and the BoE & MPC under #19 & #29, is misguided, misplaced and mercenary.

  • Comment number 76.

    Both men may be fairly relaxed about the jump, but as economics editor, I suspect the public would rather you were not. I suggest perhaps you should be pressing them on the matter. There are many things about which to be concerned here.

    Discarding the pretence of independence, the BoE and the Treasury seem to be intent on solving the problem by relying on savers and earners bailing out the indebted. While that may work on paper, it ignores the very real possibility of civil unrest or a widespread rethink of the moral stance that we take for granted amongst the productive areas of society.

  • Comment number 77.

    It is really weird but I keep reading these blogs (and some others) and stuff gets said that everyone (almost) agrees with...or knows....except experts

    For instance experts keep on saying this was a credit crunch that nobody could predict.... at all...arrived out of a blue, clear sky like a meteorite........except all the ordinary people who kept saying for years from 2000 onwards: 'My house 'earns' more a month than I do...that can't keep going on can it."

    Now in the same way I think that really 'everybody knows' the single central political plan is to try and repeat not the teetering on the edge of hyper inflation---of the seventies, but the 'nice' inflation of the 80's.

    The calculation is probably that after Maggie smashed up the unions..the 'nice ' inflation will be acheivable (without blowing up into nasty 70's style...or even worse Weimar and Zimbabwe style, inflation) because the nasty unions won't be asble to chase it up with wages.... as by and large they don't have the power they had back in the 70's.

    So either all the ordinary workers ---and that by and large now includes self employed, service industry people, and most SMEs unnder a couple of hundred employees, as well as what's left of industrial workers--- and public sector workers ----- will get poorer quite significantly----or they will rediscover the militancy wof the 70's...and hen inflation will lilely head north.

    We all know that whatever is being said by the 'establishment' inflation isn't truly being seen as the trap by's seen as the only way out....and the 2nd most depressing depressing thing is that we have to sit around for six months or more before having these blindingly obvious conclusions revealed breathlessly to us by economists and economic commentators.

    The most depressing thing is that it probably won't work..the economy's feet will be in the bonfire and the head in a block of ice and although the average will indicate healthy life the poor soul will be as dead as the Dodo

  • Comment number 78.

    #69 Squarepeg

    Your comment re jobsagoodin #61 could be interpreted as the same given you fail to provide the context that the post was replying to a very one-sided and completely irrelevant comment at fleche_dor.

  • Comment number 79.

    " Last years BoE forecast promised Deflation for this year."

    I have lived in this miserable Country for over 60 years and have never known deflation, only Inflation, at between 2.5% and 25% (1970s.)
    I have also only ever known Devaluation of Sterling and can remember 10 Swiss Francs and 4 US Dollars to the Pound.

    The whole Political , Financial, and Management Establishment need sweeping away.

  • Comment number 80.

    As far as savings are concerned,interest rates are a farce.Will the advantage always lie with the borrower?.Anyone without property,but holds savings must despair.We are simply replicating the property bubblethat so nearly ruined us last time round, cheap money doesn't work.

  • Comment number 81.

    FDD not sure of your point - just providing the factual data under two administrations in response to rather one-sided and erroneous comments at #52. But please join the gang. I thought better of you.....

    It would be good if people could argue from a base of fact rather than too often quoting very selected and, at times, erroneous contexts. If people want to attack what I say then just make sure its robust.

    It's a pity some of this can't be tuned to the holes in the blog lead comment. I'll take it as a sign people are getting desperate. It won't be the first time.

    BTW, your earlier comment re stagflation is I believe correct as several of us have previously intimated that this was the probable economic case going forward. Though I'd like to think it wasn't.......

  • Comment number 82.

    Squarepeg #69

    1. My political view isn't predetermined. I supported Labour in 1979. Please don't be so arrogant as to believe anyone who's view differ from your own doesn't have the capcity of independent thought.

    2. I was defending Thatcher's record on inflation not Ted Heaths.

    3. Public spending under the Tories would have been substantialy lower over the last 10 years and our public finances in dramatically better shape right now.

    4. There is a substantial difference between the parties in terms of the likelihood of the deficit problem being properly addressed. My beliefs aren't based on dogma anymore than your own, just sound common sense judgement.

  • Comment number 83.

    #75 fleche_dor

    I really hope you're not a history teacher - see #67 to help you understand some of the fallacies contained within your comments.....

  • Comment number 84.

    #40, 50
    Whether you look at CPI or RPI for your pay rises is irrelevant, since they are both historical measures. What is of real interest / worry is what they will be in a year's time. A pay rise of 3% now might look as though it keeps the status quo, but not if next year's inflation is 8%.

    Down this road lies the biannual (or more) pay round / strike (and I remember 1975 - I got two pay rises in one 6-week summer job). Aside from any negative impact on productivity of strikes, how hard will it be for businesses to plan their budgets for even the medium term if they don't know what their salary bill will be in 4 months time.

    The bad effects of high inflation are much more than just on savings - and more (for ordinary people) than the benefits of reducing the government's debts.

  • Comment number 85.

    The borrower is servant to the lender.
    The bankers happily advise Labour to borrow as much as it wants until the inevitable crisis occurs. They fall for it. The bankers benefit from interest and power.
    The people and the press get fed up.
    Then in come the Conservatives to sell off the things of value to the private sector, tying to balance the books. The bankers win even more.
    The private bankers' cycle is to increase debt then reduce the money supply (as now) so that things of real value go into private hands for pennies on the dollar.
    The borrowing is still needed but is more expensive for private companies so overall debt still goes up.
    Time to look at the whole private money (credit) supply system.
    So it goes.

  • Comment number 86.

    fleche-dor #75 wrote

    'Unless it had slipped your memory, Margaret Thatcher was elected in 1979, so had been in power two years already with inflation still at 15%'

    I hadn't forgotten which is why I said it took 2 years to cure the problem. Inflation and wage rates were running out of control at the time the Tories took over 1979 due to the wages policy having been blown away by union wage demands. If you know how to cure a problem like that overnight perhaps you know how to cure the deficit overnight as well.

  • Comment number 87.

    Hi Daley#8

    Thanks for your message. I will pass on to Shaun of notayesmanseconomics the fact that you enjoy his articles. I will also point out that you feel I have helped him (entirely gratis I might add...).

  • Comment number 88.

    Citizens - You may recall I told you, in our miracle economy, we must fight inflation, the destroyer of wealth, by practising wage restraint.

    Rejoice! for you have exercised wage restraint and greed has been consigned to the history books. Admittedly, inflation is still a challenge but this is because we won the race to the bottom and devalued our currency more than our competitors. Our economic team has ensured that we have been in recession longer than our rivals and thus will not be called to give our hard earnt wealth to the feckless in Greece and beyond.

    Also we confidently predict price inflation will come down even though it is largely influenced by factors beyond our control. Today, you are poorer than you were 6 months ago and you will be poorer still in 6 months time - but we have optimism. In the past we have survived tough times with hope, hard work and determination - now all we ask is you trust us and hope that things get better. Is it not better to ask one thing instead of demand three.


  • Comment number 89.

    dear leftie

    your preoccupation with VAT on wine, spirits , beer , cider........

    join a society where people who are not old enough to vote are displaying early symptoms of liver disease.
    town centres where young people are trendily throwing up at 2-3 am.
    pubs where young people get their teeth kicked in just for looking at someone.
    Haven't you heard of the huge trade in illegal imported alcohol and cigarettes that the majority of young people buy?
    Haven't you seen police officers and volunteers patrolling town centres from six pm confiscating this rubbish from underage children?

    VAT on alcohol and cigarettes can never be too much.
    It doesn't matter what sort of poison it is.

  • Comment number 90.

    To the BBC Moderators. Why have I seen none of my Postings for over a Month? Am I to tasty for you?


  • Comment number 91.

    75. At 5:36pm on 16 Feb 2010, fleche_dor wrote:

    #62 nautonier

    The inflation rate you quote for 1975 was due to factors before the labour government took over. The rate was reduced to 8.3% by 1978 under Labour and shot up to 18% by 1980, under the Conservatives.

    Neither Labour nor the Tories may claim anything like a spotless track record on inflation. The Bank of England and the MPC have the best record, including the response to the current recession.

    There is no room for complacency, but frivolous, futile, and fractious criticism of economists and the BoE & MPC under #19 & #29, is misguided, misplaced and mercenary.


    'The inflation rate you quote for 1975 was due to factors before the labour government took over.'

    Yes - I've got two names or 'factors' here - 'Harold' and 'Wilson' - another labour PM who 'caused' 20 years of mayhem with his insane policies and bad economic management.

    Well the history/statistics show, to most people, that Labour have a record of wrecking the UK economy and allowing inflation to go on 'the up' and it takes a Tory government to bring UK public spending under reasonable control and to also bring down inflation.

  • Comment number 92.

    58. At 3:56pm on 16 Feb 2010, Bertram Bird wrote:
    Some of us will not get a pay rise this year. Some of us didn't get a pay rise last year. I haven't had a pay rise in about six years, and some of my colleagues haven't had pay rises for about ten years....

    Spot on, I am earning the same as I was in 1998. At least when Tory inflation was 15% I was getting pay rises. That is why I'm in debt, look to the fiddled inflation figures and the tax rises, particularly Council Tax. I may not like Cameron and his Tories, but by boy do I hate Brown and his Socialists.

  • Comment number 93.

    I have to say I'm disappointed.

    There seem to be a number of us who challenge the current situation/status quo looking at the evidence with no political axe to grind other than the legacy of the current administration.

    However, there appears a number who seem to harbour left of centre views who rather than weigh up the evidence and comment objectively are intent to harp on about ages past and irrelevance based more on emotion than objectivity.

    Worse - they appear to accept the status quo with no questions asked. I simply ask what is your evidence to support and what are you trying to defend?

    It reveals an awful lot.....and its pretty tiresome....

  • Comment number 94.

    #67. Rugbyprof wrote:

    interesting statistics extracted from HMG's publications.

    I don't trust the historical data very much. For several reasons: The basis of understanding of how to work out a statistic has developed over the years, the compilers have agendas which change with time and the past is a different country.

    For example: before my great aunt retired as head statistician of the board of trade she held out against letting invisibles into the trade figures. Although this was some time ago and she is now dead it illustrates the personality and opinion influence on statistics.

    It is really quite true to say that the only fact is the five year plan, the actual and the past are all hypothetical (or some such)!

    My feeling is that what is really important is the attitude to things like regulation, cartels and monopolies and the interaction with policy over the years.

  • Comment number 95.

    #30. AudenGrey wrote:

    "I could never get my head around the biblical story of the prodigal son. Why should a waster be put in front of a good son. "

    In the story the son blows it all, comes to his senses whilst starving and goes back willing to work as a servant, foregoing his rights as a son. He'd learnt his lesson and his father welcomed him.

    I learnt the value of money during unemployment and homelessness in the seventies and have never forgotten it. Many consumers today have never had to (really) struggle and sadly will continue to treat pounds like pennies until they learn the hard way.

  • Comment number 96.


    Hi JFH

    Understand where you're coming from. One always has to be cautious with stats but in the absence of anything else they are at least a useful guide if you believe in the law of big numbers and compensating errors......

    I really don't wish to publish them but people insist on distorting history so they're there as a reminder.

    You're right about regulation, monopolies (duopolies, oligopolies etc) and policy though at macro-economic level it comes down to a few people calling the shots.

    They should, as a matter of principle and duty, since it is a privilege, review all evidence, be totally objective (to the point of resigning on principle) whilst at the same time be close enough to the 'coalface' to ensure legitimacy of action/interpretation.

    Instead we have games, games within games, and games played behind closed doors which insult our intelligence and all at the taxpayer's expense (under considerable duress).

    I think this country is being badly served currently in this respect and no amount of 'doffing caps' and wilful acquiescence as evidenced by some here will convince me otherwise......

  • Comment number 97.

    45. At 3:19pm on 16 Feb 2010, Ian_the_chopper wrote:
    I will put my advice hat on.

    Firstly post 18 I am surprised that no one has helped you out. You are getting involved in an issue of nominal and real figures.

    Higher inflation will give you a higher nominal GDP figure as prices rise the total output and spending will rise in pure numerical amounts. If your income grows by the same amount then your income is greater and GDP is greater in nominal terms but not in real terms.


    Ian, thanks for this but I dont think there is necessarily a 1 to 1 relationship between GDP and inflation. This is a little thought experiment:-

    A Country produces 1000 units and sells them for £100 each. Each unit costs £50 to make. Thus income is £100,000 and profit £50,000 The next year, the economy grows 5% as does inflation.

    You can see that if the same number of units were sold but with a 5% increase in price tag, then the numbers are:-
    Income £105,000
    Profit = 105,000-52,500=52,500 equivalent to a 5% increase even with inflation and growth at nominally the same. The issue is what happens when the price rises are no longer attainable because of competition:

    Assuming the units we are talking about are not included in the inflation rate, then the country sells 1050 at £100 to give income of £105,000 (so there has still been growth). At the same time the costs have increased by 5% to give unit cost of £52.50 so profit is now £105,000 - £55,125 = £49,878 ie a fall in profit.

    This is the real problem we face: while supermarkets etc are putting up their prices we kind of have to pay them BUT when we cant export because we are not competitive then it becomes more and more difficult to actually afford things we need (like food, accomodation, heating etc) rather than the things we'd like to have (new cars, foreign holidays etc).

    The added danger is that the politicos will talk up growth whilst ignoring the inflation since that might make it possible to be re-elected so we all end up poorer except the people in power on whose watch it all happened.

  • Comment number 98.

    so thats the BOE, Treasury and city economists who didn't see mortgages at 5-6x self-cert income as a problem, who thought crazy bubble growth in house prices and it's resulting billions in equity withdrawl was real growth in GDP

    Now they all think £200 billion QE, lending money to Banks at 3% below inflation, state ownership of 1 of the worlds largest banks and semi state ownership of another, state guarantees on 5 years of bad loans and dodgy mortgages by the UK banks, is just going to perk up the economy a bit and give us sustainable growth.

    This is not economics. It's madness.

  • Comment number 99.

    The sad fact is that most of us on this blog will need to accept that over the next few years at least, that our disposable income will be several thousand pounds a year less than we are used to. So unless we can increase our income through promotion or business growth (for those of us who are self employed) we will seriously need to think through our budgets and work out where this money will come from.

    Whichever way you look at it, we will all need to contribute to a massive pool of hundreds of billions of pounds. We can strike, protest on the streets, vote out the government.... none will make this massive black hole disappear.

  • Comment number 100.

    #97 Emkay

    Right on the button.....


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