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Spencer Dale Warns Of 'aggressive' Rise In Rates If Bank Of England Loses Credibility On Inflation

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http://www.telegraph.co.uk/finance/economics/interestrates/8019053/Aggressive-rise-in-interest-rates-if-Bank-of-England-loses-inflation-control-credibility-warns-economist-Spencer-Dale.html

Interest rates will have to rise "aggressively" if the Bank of England loses its credibility on controlling inflation, its chief economist Spencer Dale has warned.

In a speech on Wednesday night to the Cardiff Business School, Mr Dale sought to silence the "dangerous voices" questioning the Bank. He stressed that policy-makers have "not gone soft on inflation" in a stark rebuttal of City suggestions that they are turning a blind eye to their central remit.

"We lose our credibility at our peril – once the genie of inflation credibility escapes it is costly to put back," he said. "The response to a possible loss of credibility is clear – monetary policy would need to tighten, possibly aggressively so."

However, he acknowledged that there was substance to the concerns. Inflation has been "significantly higher than the 2pc target" for the past four years, he accepted. "The period of above target inflation; the fact that inflation has been higher than expected; and that it is likely to remain above target until the end of next year all contribute to the risk that credibility and confidence in the MPC may start to waver."

Explaining why inflation has been above target, he said: "It is not difficult to find factors ... The economy has been hit by a series of large price level shocks – to oil and other commodity prices, to VAT and to the sterling exchange rate."

Economists fear that inflation expectations may decouple from actual inflation levels, prompting wages and prices to start rising at elevated levels – turning inflation into a self-perpetuating problem.

Mr Dale added, though, that he is not currently concerned. "Although this remains a significant risk, my reading of the available evidence to date is that inflation expectations remain relatively well anchored," he said.

God what would we do if the BoE lost it's credibility over it's ability to control inflation. Isn't the projection record 9 out of 50?

Clearly a credible record at guessing blindly.

Still at least they aren't a laughing stock.

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Although this remains a significant risk, my reading of the available evidence to date is that inflation expectations remain relatively well anchored

Yes, to a sinking ship

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Explaining why inflation has been above target, he said: "It is not difficult to find factors ... The economy has been hit by a series of large price level shocks – to oil and other commodity prices, to VAT and to the sterling exchange rate."

Aren't these shocks a little out of date now though?

How long ago were the shocks to oil and Sterling? 2-3 years? Sterling is definitely stronger than it was at the end of '08 and oil is certainly cheaper than the 140 ish it reached a while back.

And the net effect of the lowering and then raising of VAT is nil in that time.

I am tired of these excuses for inflation.

Whereas the effects of printing money are well known, aren't they?

Still, if he is on for raising rates, then I am all for it. :)

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The horse is already out of the barn on this one, the Bank of England has already lost credibility.

If there was a major strike of public sector unions next month and the coalition were to collapse, would the Bank of England be able to control a spike in interest rates just by making a statement? No. No one would believe them. They would be forced to raise the base rate, high and fast.

The BoE is showing the exact same lack of understanding of risk that created the bubble and credit crunch in the first place. Increasing risk in the tail of the distribution while lowering the median level of risk, is not the same thing as reducing risk overall. The Bank has taken an enormous gamble by reducing base rate and leaving it so low for so long in the face of high inflation. As long as everything goes along as expected, it all looks fine on the surface, but if there is any sort of hiccup, the Bank is going to be forced to raise rates much, much higher than they would otherwise have had to do. The effects of such a move won't be pretty.

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They may be showing a clear lack of understanding but other comments from Dale suggest he has some sort of clue to the outlook. I did start a new topic about 5 hours ago but as a newbie it needs to go through the mods. Mods -- why not upgrade me and get important news fast?!

Responding to questions following a speech at Cardiff Business School, Dale noted that while it was easy to point to asset bubbles in sparking the recent collapse in the U.S. housing market, in the U.K. it was less obvious.

"I think most people have been surprised by how little house prices have fallen over this period," Dale said. "It could be that we haven't seen it all, and there could be more to come."

Link here: Spencer Dale House Price Comments

Although to say the housing bubble was less obvious in the UK...... :blink:

I've been watching the BOE for many years and this is the first comment I can remember from a bank insider regarding the level of house prices and their direction. They usually steer well away from any comments on possible asset price movements.

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I think this speech is very revealing. He was repsonding to concerns about the BOE not keeping an eye on inflation which, in itself, is a sign that they must be getting worried about the growing concerns by those outside of the BOE than UK IRs have been kept too low.

Doubt they will do anything unless forced though.

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I think this speech is very revealing. He was repsonding to concerns about the BOE not keeping an eye on inflation which, in itself, is a sign that they must be getting worried about the growing concerns by those outside of the BOE than UK IRs have been kept too low.

Doubt they will do anything unless forced though.

politically, it may be saved for the point of maximum negativity towards the govt (maybe a year or so's time) when a bit more black in a sea of economic and political blackness will not make such a big difference

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Lose credibility over inflation with who, exactly?

Any retrospective perusal of their track record on predicting and controlling inflation over the last couple of years is unlikely to lead to anyone concluding that they have any credibility on this subject. The only two conclusions it is possible to draw from their track record record is either 1) they have been lying or 2) they are incompetent.

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Lose credibility over inflation with who, exactly?

the bond markets

and competence is a relative term - think US Fed and ECB

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Lose credibility over inflation with who, exactly?

Any retrospective perusal of their track record on predicting and controlling inflation over the last couple of years is unlikely to lead to anyone concluding that they have any credibility on this subject. The only two conclusions it is possible to draw from their track record record is either 1) they have been lying or 2) they are incompetent.

+1

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Lose credibility over inflation with who, exactly?

Any retrospective perusal of their track record on predicting and controlling inflation over the last couple of years is unlikely to lead to anyone concluding that they have any credibility on this subject. The only two conclusions it is possible to draw from their track record record is either 1) they have been lying or 2) they are incompetent.

Maybe they are incompetent liars, or just lying incompetents? More like shady lying c*unts I would say.

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He stressed that policy-makers have "not gone soft on inflation" in a stark rebuttal of City suggestions that they are turning a blind eye to their central remit.

"We lose our credibility at our peril – once the genie of inflation credibility escapes it is costly to put back," he said. "The response to a possible loss of credibility is clear – monetary policy would need to tighten, possibly aggressively so."

They're totally head down in the sand - or giving that impression.

The rebutttal can be as "stark" as they like but the rebuttal isn't supported by the facts. The "stark" truth is they're trying to hoodwink the general public. It is true to say they lose their credibility at their peril but they're doing their level best to make sure that it's at everybody elses peril.

Their 2009 predictions for 2010 show how the Bankrupt of England has lost all credibility not that they had much credibility to start with in 2009 as they didn't seem to have the faintest clue about the collapse coming along the pipeline.

GDP nowhere near their central forecasts and yet inflation well that's only about 300% more than they predicted.

Yes he got one thing right and that's by using the word peril.

Edited by billybong

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http://www.telegraph.co.uk/finance/economics/interestrates/8019053/Aggressive-rise-in-interest-rates-if-Bank-of-England-loses-inflation-control-credibility-warns-economist-Spencer-Dale.html

God what would we do if the BoE lost it's credibility over it's ability to control inflation. Isn't the projection record 9 out of 50?

Clearly a credible record at guessing blindly.

Still at least they aren't a laughing stock.

Aren't they? :lol::lol::lol::lol::lol::lol::lol::lol:

Edited by gruffydd

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Don't forget these people will get an early look at the potential (or not as the case may be) quarterly growth figures..

Maybe they are reassuring the markets 'they are on it' in advance of bad news?

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However, he acknowledged that there was substance to the concerns. Inflation has been "significantly higher than the 2pc target" for the past four years, he accepted. "The period of above target inflation; the fact that inflation has been higher than expected; and that it is likely to remain above target until the end of next year all contribute to the risk that credibility and confidence in the MPC may start to waver."

You don't have to go back over 4 years although it's true to say they hardly ever got it right. Just look at the current inflation level and don't try to distract by referring to 4 years back.

As for "confidence in the MPC may start to waver" at the end of next year - why not just take your blatant hoodwinking and twisting to some other country. Very few in the UK believe you anymore.

Edited by billybong

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  • 142 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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