Wednesday, May 13, 2009
Bank Of England Inflation Report makes gloomy reading
Reuters: Recession is 'deeper than expected'
The recession has been deeper than expected and the timing and strength of a recovery is "highly uncertain", the Bank of England has said.
Its latest quarterly inflation forecast revised down the outlook for the economy, predicting a 4.5% year-on-year decline in GDP - considerably worse than Chancellor Alistair Darling's Budget forecast last month of 3.5%.
Inflation (currently 2.9%) is expected to fall below the 2% target and remain there for the medium term.
Posted by little professor @ 12:09 PM (1685 views) Add Comment
17 Comments
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1. little professor said...
Full report available here (2.9MB PDF)
Some of the more interesting points:
They are going to change the way they calculate the M4 money supply (i.e. how much they are printing) by excluding all the cash they are doling out to OFCs (Other Financial Corporations.) They've published a helpful graph to show you how the figures will change:
Average mortgage rates have failed to fall in line with the plunging BoE rate, going no lower than 2003 levels, when the base rate was 4%, eight times as high as it is now:
Sterling is fscked:
We're all fscked:
2. crunchy said...
drip, drip, drip.
3. paul said...
So they are going to disguise the amount of money they are printing by not including it in the M4 statistics?
Talk about rewriting the rulebooks.
4. refusetobuy said...
Wow! Chart 2.1 is amazingly depressing.
5. general congreve said...
Nice work LP. The powers that be can change their accounting and reporting rules all they like, but as you say, there's no escaping the fact we are 'all fucked'.
6. inbreda said...
chart 1.16 shows exactly why their predictions are pointless. Way off the mark!
7. shipbuilder said...
4. refusetobuy said...
"Wow! Chart 2.1 is amazingly depressing."
Is it? Depends what way you look at it.
8. Andrew said...
Can someone with a greater understanding of these things explain to me this;
If: "Inflation (currently 2.9%) is expected to fall below the 2% target and remain there for the medium term."
what does this mean in terms of interest rates? My understanding was that inflationary forces were at work via "quantative easing" and might be expected to start to see an inflationary surge, taking interest rates with it... whereas the above suggests that inflation is flat to declining for "medium term"
Does this mean that;
1. Inflation will stay low and interest rates will stay low (along with the GBP)
2. Inflation will stay low but Interest rates will start to rise due to other forces (e.g. increased cost of gov't borrowing)
3. That noone knows what will happen, least of all Reuters/BOE
4. Something completely different
Finally - any ideas what "the medium" term might mean in an objective number format (i.e. Months)?
9. crunchy said...
Agreed ship....If you look at it upside down it's really depressing!
10. little professor said...
chart 1.16 shows exactly why their predictions are pointless. Way off the mark!
See also the difference in their GDP forecast made in May 2008 and the current forecast just one year later:
11. little professor said...
12. 51ck-6-51x said...
Whilst forecasts may be way off the mark (is that really that surprising?!) the M4 measure changes do actually make sense, it's a movement from a legal definition of the money creating sector to a functional definition, as is used in Europe, Japan and the U.S. and is targeted at examining actual liabilities rather than just the narrow legal definition of a deposit taking institution, M4 should attempt to accurately measure the broad money supply.
13. flashman said...
The BOE has belatedly realised that their emphasis on targeting inflation was no longer adequate in a globalised world. They are about to start using M4 in their 'targeting' tool kit and consequently needed to update its calculation criteria. The new method is much more fit for purpose.
I think the latest Sterling projection will prove to be quite accurate but in many ways, we'd be better off if Sterling stayed where it is
14. confused76 said...
"Inflation (currently 2.9%) is expected to fall below the 2% target and remain there for the medium term"
sure sure
just like the Japanese deflation, 2.9% almost nothing
(appreciate the sense of humour of the 2.9%... why not 3%)
the only thing in common with Japan is sushi
15. drewster said...
Little Prof,
You're really starting to live up to your "Professor" name! Thanks for this post, most informative.
Regarding chart 1.16 (Sterling exchange-rate index), bear in mind that the falling pound helps keep a lid on unemployment.
- Devalued pound => polish plumbers go home => fewer workers competing for jobs => less unemployment
- Devalued pound => UK-made goods and services become cheaper abroad => more people kept in work
I'm not saying I'm in favour of it.... but I am glad to have a job.
Chart 2.1 (world trade) is frightening. However if we look at the Baltic Dry Index then we see clear signs of recovery in world trade since December 2008. I use the word recovery lightly - the index is still 80% below its peak. If house prices follow a similar path then I'll be happy!
16. drewster said...
Mish has some good graphs from across the pond. He has kindly highlighted the green shoots for us :)
Mish: Retail Sales "Green Shoots" Wither On The Vine
17. drewster said...
Oops, try again with the graphs:
