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http://news.ft.com/cms/s/92314076-9848-11d...00779e2340.html

subscription only, but here's a couple of quotes.

The Bank of England's monetary policy committee meets this week amid some calls for a cut in interest rates. These intensified with the publication of British Retail Consortium figures showing like-for-like retail sales grew just 0.2 per cent in January, a turn for the worse after a robust December. But the Bank should stand firm: there is no case for a rate cut at this juncture.
If it did cut rates, it might find itself having to reverse course rather quickly.

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Hold steady on rates

Published: February 8 2006 02:00 | Last updated: February 8 2006 02:00

The Bank of England's monetary policy committee meets this week amid some calls for a cut in interest rates. These intensified with the publication of British Retail Consortium figures showing like-for-like retail sales grew just 0.2 per cent in January, a turn for the worse after a robust December. But the Bank should stand firm: there is no case for a rate cut at this juncture.

It is important not to make too much of one month's retail sales. Even on the BRC's numbers, total retail sales grew at a respectable 3.4 per cent (the difference between this and like-for-like sales is added floor space). Consumers often switch spending between December and January sales. Taken together, the two months' data suggest retail spending has picked up since mid-2005, although the recovery is not complete.

This is consistent with the picture given by overall growth numbers. Gross domestic product grew at 0.6 per cent in the fourth quarter, up from 0.4 per cent in the third, ending a lacklustre year on a more promising note. There is no reason to suppose demand will sag again in early 2006.

Those calling for a rate cut, including Stephen Nickell, a member of the MPC, argue that past weakness in demand has opened up an output gap, and caution that the Bank's forecasts for growth further out are aggressive, creating risks that inflation may come in below target. However, while demand has indeed been weak, it is not obvious that a rate cut is the right response. Much of the slowdown in consumer spending last year was due to one-off factors: the squeeze on disposable incomes from higher energy bills and a higher tax take, plus a modest rebound in the savings rate. There is a further squeeze to come from utility bills, but this too will be a one-off adjustment. Unless the savings rate keeps on rising, spending should gradually revert to growing broadly in line with incomes, which remain strong.

The weakness of demand in the interim should concern the MPC only if it has opened up, or will open up, a gap between demand and potential supply. That could push inflation - 2 per cent in December - below target. Mr Nickell believes potential supply is growing at a trend rate of 2.7 per cent. If so, a rate cut would be justified.

However, there are reasons to be sceptical about spare capacity on the supply side. Recent studies suggest productivity growth has slowed abruptly over the past 18 months. Whether this is due to high oil prices reducing the supply potential of the economy, or something more profound, the conclusion is the same. At this moment, potential supply may be growing at rather less than 2.5 per cent.

Given this, the sensible course is for the Bank to hold steady, while remaining on guard against any further weakening of demand, or any strong evidence of a widening output gap. If it did cut rates, it might find itself having to reverse course rather quickly.

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Much of the slowdown in consumer spending last year was due to one-off factors: the squeeze on disposable incomes from higher energy bills and a higher tax take, plus a modest rebound in the savings rate. There is a further squeeze to come from utility bills, but this too will be a one-off adjustment

Funny how energy and utility cost increases are always described as one offs.

Don't see any signs that any utility bills are going to get cheaper in the next few years whether eleccy, gas, water, council tax etc etc. All seem under increasing international pressure/demand and/or underinvestment.

And without wishing to open a new oil thread anyone who is willing to bet on oil getting back to the 30-50 dollar a barrel range in the next few years (ever?) is in cloud cuckoo land.

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Funny how energy and utility cost increases are always described as one offs.

Indeed. They might as well just throw everything out of the inflation figures if they're going to ignore a more than doubling of the price of oil in the last few years as a 'one-off' event. Heck, every time the price of anything goes up it's a 'one-off' until the next time.

Am I right in thinking that Britain is the only first world nation where there's any talk at all of cutting rates rather than raising them?

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Indeed. They might as well just throw everything out of the inflation figures if they're going to ignore a more than doubling of the price of oil in the last few years as a 'one-off' event. Heck, every time the price of anything goes up it's a 'one-off' until the next time.

Am I right in thinking that Britain is the only first world nation where there's any talk at all of cutting rates rather than raising them?

I'm getting pretty fed up with papers reporting energy price hikes as "one offs". This is real. It's not just some little irritation to be swatted away. This is the start of the energy crisis. It might ease off from time to time, but this is it. It's happening NOW. Energy is going to become more expensive, and fast. The party is over. It is about time the idiots that write these newspaper articles got to grips with it.

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From now on the only thing that will be brought into consideration for inflation, is the cost of breathing!

Yours sincerly Gordon Brown

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  • 301 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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