Sunday, May 11, 2008
Fait accompli !!
The Telegraph: Bank of England warns of two years of stagflation
"Mervyn King, the Bank's Governor, is poised to unveil new forecasts showing that the Consumer Price Index (CPI) will rise above 3 per cent over the next six months, forcing him to write a letter of explanation to the Chancellor."
"They come amid warnings that Britain now faces a US-style housing crash, with plummeting prices and rising repossessions."
But wait for it!!
"Despite the higher rate of inflation, the Bank is likely to indicate its readiness to cut borrowing costs again at least once - perhaps twice - in the coming months."
"The Governor would insist that the increase had not come as a surprise."
Oh thats OK then.
Posted by cheekie charlie @ 10:01 AM (558 views) Add Comment
7 Comments
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1. amjidk said...
They are prepared to cut interest rates again, despite inflation, that is so irresponsible, good bye to the value of the pound then..
2. scandinavian pessimist said...
Dear bloggers,
Your knowledge has impressed me on a number of occasions so let's see if anyone of you can answer this question: why do BOE ignore its own inflation target? Ok, I know some of you will say that they are just puppets under the government (who would probably prefer inflation to reduce depts just to avoid a HPC) but lets not go down that road this time. BOE will look at this crisis strictly from a macro economic view so clearly there are good economic reasons to favour inflation over slow growth. But what are these reasons? Why bother with targets if they are not that important when it really matters? Inflation do a lot of damage to long term investors as well as people on fixed income and BOE knows this. SO WHY?! Anyone?
3. Ijjhall said...
@Scan Pessimist
A simple explanation I heard (for someone with a formal limited grasp of economics I admit it) on Newsnight the other night was that in a recession/depression inflationary pressures are just not there/a threat so inflation is the least of your problems so don't be fixated by it.This thinking is summed up by rogue MPC member Danny Blanchflower's comment about 'fiddling with inflation while Rome burns..' I guess the BOE have accepted this view..
4. plato said...
I am not an economist so my answer is purely judgemental :
What we have here is a combination of major economic disasters. The foolishness behind these is easy in hindsight for those responsible, and may well have already been calculated,but hardly something that can be openly admitted to.
The trick now is to limit the damage to the economy and to themselves. The wisdom is to not have done this in the first place and now to ensure a stable future.
What we have now is a juggling act to limit or I should say dilute the damage -- a 'suck it and see' phylosophy.
Now there is a serious HPC.The future can be sacrificed as there is always time to catch up ! -- So lower interest rates, keep everyone happy,ease the HPC,look socially kind.etc.ect......... However it IS known this will not work.
Basically the whole thing's a fabrication -- no one can make any sense out of it -- and the conclusion is a failure of the whole system, which has been based on imaginary wealth.
Alternatively read the so-called 'conspiracy theories' and reach whatever conclusion suits you, as we all assume there must be a reason.
5. hogwash said...
BOE and other central banks focusing on "Core Inflation".
Essentially, if there is little domestic inflation (wage increases), but big price rises (fuel costs), the effect is quite similar to interest rate increases. Raising IRs would just double the effect and risk an undershoot.
Bare in mind that deflation or an inflation undershoot would be unmanageable for the goverment (nowhere to hide their hopeless inefficiency).
In reality, many suspect the statistics are massaged, so "GDP + 2.5%" may translate into flat, close to permanent recession during the miracle years.
6. denzil said...
Good old BoE! Just give the public some more of that poison that they over-indulged on in the first place. I wonder ff Gordon had to ask Tony before telling Mervyn that rates should be cut regardless of target!
On a related point CPI around 3%. What a joke, it's probably been around 5%-7% for the last 18 months anyway.
7. stillthinking said...
Because the BoE is worried about deflation, or the deflationary aftershock. King is now following Svennson's theory to escape from a liquidity trap, accoding to this he needs to anchor inflationary expectations in the public mind.
We have inflation now and will have for a while, but where does persistent inflation come from during a mortgage freeze? Nowhere. Nobody borrows. The inflation we have now is because STRs are not spending asian money anymore, they are spending BoE provided funds which came from nowhere. As has been mentioned many times before, it is meaningless to think of the BoE as inflation fighters when -they- are the main cause of inflation, and the reason they are the main cause of inflation is to avoid at all costs deflation. Hence Kings position and also of Branchflower, about price falls because the crash needs to happen QUICKLY, otherwise borrowing won't start again. We get a rush of inflation now because the asian wealth backing became empty and now 30 year secret backing.
The US just sent envelopes full of cash to the people .... That is deflation fighting. They don't call it deflation fighting but thats what it is.