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Bank Of England Urged To Keep Uk Interest Rates Low

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http://www.bbc.co.uk/news/business-12201123

The Bank of England should "hold its nerve" and avoid pressure to raise interest rates, an influential economics forecaster has said.

The Ernst & Young ITEM Club says any increase in the bank base rate from the current historic low of 0.5% could endanger the economic recovery.

The bank should stand firm against temporary pressures such as the VAT rise, it says.

Meanwhile, Deloitte is warning of a "bumpy road to recovery".

In its 2011 UK economic review, it says it expects GDP growth this year and next of just 1.5%.

Meanwhile the more-optimistic ITEM Club forecasts UK GDP growth of 2.3% this year, rising to 2.8% in 2012.

Inflation

Deloitte believes the UK economy is building up momentum but that "the true test" - the severe fiscal squeeze - is yet to come.

And it warns that fiscal tightening could leave the recovery looking lacklustre over the next couple of years.

Deloitte also says current rates of inflation - with the CPI rate at 3.3% and RPI rate at 4.7% - will add further pressure to household incomes.

The accountancy and consulting firm says despite these high rates, its expects inflation to fall by about 1.5% next year, to about 1.8%.

The ITEM Club is also predicting inflation will drop back to the 2% target in 2012.

It says that as the government's austerity measures start to take effect, inflationary pressures will be coupled with below-trend GDP growth.

"It's going to be a tense start to 2011," says Peter Spencer, chief economic adviser to the Ernst & Young ITEM Club.

"The fiscal retrenchment will keep GDP subdued, while commodity price rises and the VAT hike will push inflation close to 4% and leave the MPC agonising over whether to increase the Bank base rate.

"However it's vital that the MPC stands firm. These are temporary pressures, domestic cost inflation remains low and CPI inflation will come back to heel in 2012 once the VAT increase falls out of the figures next January."

Exports

Deloitte says that although government cuts are spread over many years, it points to public sector employment already falling, the recent VAT increase, and the national insurance contributions hike in April.

The report says that the only alternative to the government's current strategy appears to be if the Bank of England's monetary policy committee conducts more quantitative easing and pumps money into the economy.

Deloitte also points out that pressure is on the private sector to keep the recovery going, but that questions remain over whether it can generate enough jobs to offset the public sector job cuts.

"The onus is therefore firmly on those parts of the economy which are relatively immune from the direct effects of the fiscal squeeze - namely exports and investment - to drive growth instead," says Deloitte economic adviser Roger Bootle.

"At least exports have been rising strongly. What's more, the recently announced plans for an extra fiscal stimulus in the US should leave the outlook for global demand a bit brighter."

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Make you wonder why for years we had high interest rate if all this time they could keep them at 0.5%.

You are probably saying that sarcastically but I still think it is a good question. I think the reasons for inflation are more complex than just money supply.

For example imagine you are a firm and the demand for what you are producing is 1 million units a year. But now Mystic Merv goes crazy and prints twice as much money, and many more people have cash so demand rises to 2 million units a year. That 2nd million units is going to be a lot cheaper per unit to produce than the first 1 millon units. In that specific product the price might even fall with more money around.

However say you wanted to buy that nice property with ocean front and close to town.. that likely would skyrocket in nominal price with more money supply.

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You are probably saying that sarcastically but I still think it is a good question. I think the reasons for inflation are more complex than just money supply.

For example imagine you are a firm and the demand for what you are producing is 1 million units a year. But now Mystic Merv goes crazy and prints twice as much money, and many more people have cash so demand rises to 2 million units a year. That 2nd million units is going to be a lot cheaper per unit to produce than the first 1 millon units. In that specific product the price might even fall with more money around.

However say you wanted to buy that nice property with ocean front and close to town.. that likely would skyrocket in nominal price with more money supply.

Wot? So with units the price wont inflate, but with houses it does. Why's that? I know this is likely an extension of your ongoing 'print our way to wonderland' outlook but perhaps you could justify this single post for me.

Let me just answer one angle you might take: Sure it's hard to increase supply of housing as quickly as money supply, unlike units which apparently everyone will be buying more of with their extra "payrises"...hahaha stop it, l'll wet myself. HOWEVER Consider also that you can't print energy or raw materials and l suggest that these are even harder to increase in supply to match any printing. So l find it amusing that you try to assert that input costs to a single unit would stay the same as the money supply leapt ahead.

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Ernst and bung are obviously looking for an export led recovery which seems to have been the plan and is why we have joined the race to the bottom.

When we seem to import so much why would a strong pound not be in our favour?

Is it because everything that is imported us plebs pay for and everything that is exported generates tax revenue?

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You are probably saying that sarcastically but I still think it is a good question. I think the reasons for inflation are more complex than just money supply.

For example imagine you are a firm and the demand for what you are producing is 1 million units a year. But now Mystic Merv goes crazy and prints twice as much money, and many more people have cash so demand rises to 2 million units a year. That 2nd million units is going to be a lot cheaper per unit to produce than the first 1 millon units. In that specific product the price might even fall with more money around.

However say you wanted to buy that nice property with ocean front and close to town.. that likely would skyrocket in nominal price with more money supply.

I already have my units thank you very much.

if I want to increase demand, Ill drop the price a bit, make the old one obsolete, add an i to its name...something that doesnt add to the COST of producing it because, in a falling demand environment, that means I die unless I can either...sell more or get costs down.

printing, as it already has, puts costs up. Commodities doubled 2010, Oil now 100$, taxes up.

my customers also use commodities, which puts their disposable at a loss too...they dont need my "Unit" so much if they have to buy food or energy...which most of them do.

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You are probably saying that sarcastically but I still think it is a good question. I think the reasons for inflation are more complex than just money supply.

For example imagine you are a firm and the demand for what you are producing is 1 million units a year. But now Mystic Merv goes crazy and prints twice as much money, and many more people have cash so demand rises to 2 million units a year. That 2nd million units is going to be a lot cheaper per unit to produce than the first 1 millon units. In that specific product the price might even fall with more money around.

However say you wanted to buy that nice property with ocean front and close to town.. that likely would skyrocket in nominal price with more money supply.

The product price won't fall. The boss of the company will just inflate his salary (so he can buy that nice property)

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Anyone else see the Ernst and Young bod on BBC breakfast ?!

Was being asked about inflation etc.. His answer was, and I quote here:

"The underlying problem is there is no underlying problem"

:lol:

I think he was trying to convince himself he wasn't talking pish.

He then proceeded to state about 3-4 times tha 'INFLATION WILL FALL BACK DOWN NEXT YEAR'

Exactly how does he know this for a fact ?

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He then proceeded to state about 3-4 times tha 'INFLATION WILL FALL BACK DOWN NEXT YEAR'

Exactly how does he know this for a fact ?

He's looked at the BoE inflation-predicting model (any year will do, really), and it says it will?

Peter.

Edit: replied to wrong post.

Edited by Blue Peter

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You are probably saying that sarcastically but I still think it is a good question. I think the reasons for inflation are more complex than just money supply.

For example imagine you are a firm and the demand for what you are producing is 1 million units a year. But now Mystic Merv goes crazy and prints twice as much money, and many more people have cash so demand rises to 2 million units a year. That 2nd million units is going to be a lot cheaper per unit to produce than the first 1 millon units. In that specific product the price might even fall with more money around.

However say you wanted to buy that nice property with ocean front and close to town.. that likely would skyrocket in nominal price with more money supply.

Here, it's been pissing down since 5.00AM and it is as dark as Newgate's Knocker.I needed a good larf to brighten my day.

Thanks.

:lol::lol:

Suggest you toddle off and study some basic economics: and Monetarism Theory.

And then study some basic market theory too: such as marginal costing: price sensitivity: and Price/Volume Mix.

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Anyone else see the Ernst and Young bod on BBC breakfast ?!

Was being asked about inflation etc.. His answer was, and I quote here:

"The underlying problem is there is no underlying problem"

:lol:

I think he was trying to convince himself he wasn't talking pish.

He then proceeded to state about 3-4 times tha 'INFLATION WILL FALL BACK DOWN NEXT YEAR'

Exactly how does he know this for a fact ?

He doesnt know.

But then if they are wrong they will just casually say inflation remains unexpectedly high.

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Legal fees aren't cheap. Ernst & Young might want to increase their fees.

Accountancy giant Ernst & Young has been sued by New York's attorney general over its role in the collapse of Lehman Brothers during the financial crisis in 2008.

Andrew Cuomo claimed the firm was complicit in a "massive accounting fraud" perpetrated by Lehman.

http://www.bbc.co.uk/news/business-12057170

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Economics is bunk. Snake oil science.

Much of it is indeed, "Bunk".

Some, however is immutable: such as the law of Supply and Demand.

Not a "Science" BTW: science must enjoy utterly provable outcomes.

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Much of it is indeed, "Bunk".

Some, however is immutable: such as the law of Supply and Demand.

Not a "Science" BTW: science must enjoy utterly provable outcomes.

Even supply and demand, once you get past the essentials for survival. Supply can probably be measured but demand for anything else is utterly driven by fashions, speculation, vested interests etc. that it's as much a matter of opinion and not a lot else as the rest of economics. Even supply can be rather questionable - look how splt people are as to how much of a shortage of housing there is (ranging from "lots" to "none").

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Even supply and demand, once you get past the essentials for survival. Supply can probably be measured but demand for anything else is utterly driven by fashions, speculation, vested interests etc. that it's as much a matter of opinion and not a lot else as the rest of economics. Even supply can be rather questionable - look how splt people are as to how much of a shortage of housing there is (ranging from "lots" to "none").

Thank you. Supply and demand - bunk. Demand is driven by marketing not by need.

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http://www.bbc.co.uk/news/business-12201123

The Bank of England should "hold its nerve" and avoid pressure to raise interest rates, an influential economics forecaster has said.

Please hold your nerve, so we can claim higher profits, and we can put less aside for bad debts, and make more 'profit', and justify nice big bonuses.

Yes please hold your nerve, shaft the savers, and shaft the nation with high inflation.

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Even supply and demand, once you get past the essentials for survival. Supply can probably be measured but demand for anything else is utterly driven by fashions, speculation, vested interests etc. that it's as much a matter of opinion and not a lot else as the rest of economics. Even supply can be rather questionable - look how splt people are as to how much of a shortage of housing there is (ranging from "lots" to "none").

So, explain please how and why Supply and Demand doesn't apply to such food commodities as Wheat, Potatoes, Rice, etc?

You are conflating disparate issues.

Brainwashing gullible cases of arrested development by saturation advertising and PR, has nothing absolutely and whatsoever to do with economics.

It is marketing: not markets, per se.

Perhaps if you feel so strongly, then you should be aiming to re-write the works of such luminaries as Adam Smith, Ricardo, John Stuart Mill, Menger, von Hayeck et al.

:o

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http://www.bbc.co.uk/news/business-12201123

The Bank of England should "hold its nerve" and avoid pressure to raise interest rates, an influential economics forecaster has said.

The Ernst & Young ITEM Club says any increase in the bank base rate from the current historic low of 0.5% could endanger the economic recovery.

The bank should stand firm against temporary pressures such as the VAT rise, it says.

Meanwhile, Deloitte is warning of a "bumpy road to recovery".

In its 2011 UK economic review, it says it expects GDP growth this year and next of just 1.5%.

Meanwhile the more-optimistic ITEM Club forecasts UK GDP growth of 2.3% this year, rising to 2.8% in 2012.

Inflation

Deloitte believes the UK economy is building up momentum but that "the true test" - the severe fiscal squeeze - is yet to come.

And it warns that fiscal tightening could leave the recovery looking lacklustre over the next couple of years.

Deloitte also says current rates of inflation - with the CPI rate at 3.3% and RPI rate at 4.7% - will add further pressure to household incomes.

The accountancy and consulting firm says despite these high rates, its expects inflation to fall by about 1.5% next year, to about 1.8%.

The ITEM Club is also predicting inflation will drop back to the 2% target in 2012.

It says that as the government's austerity measures start to take effect, inflationary pressures will be coupled with below-trend GDP growth.

"It's going to be a tense start to 2011," says Peter Spencer, chief economic adviser to the Ernst & Young ITEM Club.

"The fiscal retrenchment will keep GDP subdued, while commodity price rises and the VAT hike will push inflation close to 4% and leave the MPC agonising over whether to increase the Bank base rate.

"However it's vital that the MPC stands firm. These are temporary pressures, domestic cost inflation remains low and CPI inflation will come back to heel in 2012 once the VAT increase falls out of the figures next January."

Exports

Deloitte says that although government cuts are spread over many years, it points to public sector employment already falling, the recent VAT increase, and the national insurance contributions hike in April.

The report says that the only alternative to the government's current strategy appears to be if the Bank of England's monetary policy committee conducts more quantitative easing and pumps money into the economy.

Deloitte also points out that pressure is on the private sector to keep the recovery going, but that questions remain over whether it can generate enough jobs to offset the public sector job cuts.

"The onus is therefore firmly on those parts of the economy which are relatively immune from the direct effects of the fiscal squeeze - namely exports and investment - to drive growth instead," says Deloitte economic adviser Roger Bootle.

"At least exports have been rising strongly. What's more, the recently announced plans for an extra fiscal stimulus in the US should leave the outlook for global demand a bit brighter."

That means rates should rise as the Item Club have a fantastic history of getting wrong. A year ago they said inflation would fall within target, they also said that we would get deflation. Do the opposite, as odds on they are wrong yet again.

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Ah the Ernst & Young ITEM Club, probably the only forecasters who have been worse than the Bank of England with their economic predictions for the last 3 years.

http://www.accountantforums.com/ernst-and-young-item-club-autumn-forecast-t135106.html

http://www.accountancyage.com/aa/news/1759723/it-s-official-uk-recession-e-y-reports

etc.

Rates will almost definitely be kept low by any historical measure. Inflation will probably be let rip and to hell with the consequences.

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  • 284 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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