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Bank Of England Accused Of 'smoke And Mirrors' On Inflation

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http://www.telegraph.co.uk/finance/economics/interestrates/8471088/Bank-of-England-accused-of-smoke-and-mirrors-on-inflation.html

With the annual rate of price rises currently double the official target at 4pc, the Bank's central projection that the rate should return to 2pc next year is under considerable debate.

However, Simon Ward, Henderson's chief economist, thinks the Bank is deflecting attention away from a far more worrying presentation of how fast it thinks prices will rise in the future.

"Inflation-targeting has become meaningless," he said. "The opacity of the forecasting process and scope for creative interpretation of the remit and presentational manipulation imply that there is no effective constraint on the Monetary Policy Committee's [MPC] 'discretion'."

His argument is that the Bank's most recent quarterly forecasts show its mean forecast – the mathematical average of its projections – is for inflation of 2.48pc two years ahead, if interest rates do not rise.

As the mean forecast takes account of the skew of risks, it is a useful indicator as to whether the MPC is on track, according to Mr Ward. He warned that the latest figure was "the largest positive deviation from the target since February 1998 and clearly signall[ed] the need for higher interest rates".

What next someone saying the MPC has no credibility!

As soon as you set a target it becomes meaningless, if only some ex member of the BoE had come up with that in the past....

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http://www.telegraph.co.uk/finance/economics/interestrates/8471088/Bank-of-England-accused-of-smoke-and-mirrors-on-inflation.html

What next someone saying the MPC has no credibility!

As soon as you set a target it becomes meaningless, if only some ex member of the BoE had come up with that in the past....

The inflation lie is now just a joke. A few years back when they said things like 2.5% /3% ect not many people noticed that the real rate was more like 5 or 6% . Now people have woken up and know that the real rate is much much higher than quoted and the BOE and Govenment have lost any credibility where inflation is concerned.

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To be fair, it could be argued that inflation targeting has never worked. It didn't stop a huge trade deficit and a credit/asset bubble being built, off the back of imported deflation (of cheap goods from the developing world). The obvious 'solution' which aiming for the target suggests also doesn't make sense - cranking up interest rates in a lukewarm economy isn't going to help (the credit expansion horse bolted years ago).

It's about time they declared price index targeting a failure, on both the way up and the way down, and started to thinking of something else to measure. I would suggest trying to monitor and manage (through lending limits when the base rate is ineffectual* too) the credit growth rate, while keeping a close eye on external credit sources outside of the traditional banking sector**.

* When long term borrowing is too cheap for overnight rates to have a significant impact, such as during the last credit boom, fuelled by cheap money from China et al.

** Shadow banking, distributed mutual credit systems, etc. Essentially, areas of credit growth which doesn't flow through the traditional institutional banking channels.

EDIT: To add, as the economy seems pretty much saturated in debt, I doubt the BoE would be very busy in limiting credit creation either. The base rate already at near zero, with little sign of run away borrowing about to take place.

Edited by Traktion

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Mr Ward also thinks the Bank is being disingenuous when it refers to the projected path of inflation if interest rates rise as markets expect.

Various dictionaries seem to roughly agree on the meaning of the word disingenuous.

That is:

- not straightforward; not candid or frank; insincere, hypocritical, dishonest.

- slyly deceptive or misleading, typically by means of a pretense of ignorance or unawareness

Sounds about right for the Bank.

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Merv is making all the right moves in doing nothing (remaining vigilant).

One hike and the HPC will gather pace and wreck the economy in less that a year.

Its ALL about house prices in this country.

Merv's remit is to protect the housing market because if that collapses EVERYTHING, and I do mean everything, goes down with it. And .25% is probably enough to tip us over the edge.

The US is likely to fall back into recession later this year and we will follow suit by the 3rd or 4th Q. Demand will drop as more jobs are lostr and oversees demands collapses (especially from our number one single nation trading partner--the US). Oil is casing huge damage to the economy and it too will bring on recessionary pressures.

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http://www.telegraph.co.uk/finance/economics/interestrates/8471088/Bank-of-England-accused-of-smoke-and-mirrors-on-inflation.html

What next someone saying the MPC has no credibility!

As soon as you set a target it becomes meaningless, if only some ex member of the BoE had come up with that in the past....

Simon Ward is a very good economist and his blog provides economic analysis that is generally far superior to the main UK news sources.

As RB said there is certainly a large element of protecting house prices in our Interest rates decisions. Inflation is not really the priority. The BOE are definitely fudging the figures, very negative on the economy as any other viewpoint would force them to raise rates.

What we need is a sustainable UK recovery that is not based on every increasing House Prices, house prices need to be pushed down and raising interest rates will achieve that.

I think most of us would like to watch the UK VI’s, Estate agents, Wilsons etc take the real economic beating they deserve. I would certainly like to see that whilst the rest of the economy is largely unaffected. No point in affordable housing if you don’t have a job / income to pay for it.

Recent UK data supports this possibility IMO. It is possible to have a solid economy that is not based solely on consumption and debt we are making small steps in that direction. Hopefully economic data will force up interest rates in the next 6 months and we will see falling house prices whilst the rest of the economy does ok.

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To be fair, it could be argued that inflation targeting has never worked.

to effectively target inflation you'd need to target central banks, gov't treasury depts and fiat i.e. get rid of them.

It's about time they declared price index targeting a failure

actually, it's been a resounding success: those that pedal and impose this ******** monetary system on us are making off with trillions.

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The inflation lie is now just a joke. A few years back when they said things like 2.5% /3% ect not many people noticed that the real rate was more like 5 or 6% . Now people have woken up and know that the real rate is much much higher than quoted and the BOE and Govenment have lost any credibility where inflation is concerned.

You can't eat an ipad.

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  • 312 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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