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Stagflation And Weak Uk Growth

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Stagflation is a word that Britain has not heard since the days of Harold Wilson, but now Tony Blair might have to start looking it up in his dictionary.

The Governor of the Bank of England, Mervyn King, reckons there is a 50% chance that the Monetary Policy Committee will exceed its 2% inflation target (for the fist time) in the next six months. Meanwhile, unemployment is rising.

Growth looks strong at around 2.6%. But is it really? Remember that since 2004 some 600,000 immigrants from Eastern Europe – plus maybe 400.000 illegals – have joined the workforce. True, four-fifths of them may be on the minimum wage, but that is still a big boost to economic growth. Yet this boost will not last: most of those who want to come are already here, and the next wave of immigration, from Romania and Bulgaria, may well be resisted by the politicians.

Underlying growth is thus less than it appears. And inflation is higher than it appears. Gordon Brown has adjusted the calculation of the inflation index twice, lowering it each time. The Governor had hinted that he regards the current target, the Consumer Price Index, as inadequate. Thanks to China, the cost of imported luxuries like electronics and designer T-shirts is falling; but thanks to the government, essential expenditures like council tax and utility bills are soaring.

Meanwhile narrow money is growing at 5.4%, and broad money at 13.1%, which means that more inflation is in the air. The MPC will be minded to put interest rates up to 5% or even 5.25% to choke it off. But they might well over-choke it, because there is other bad news around. About half of UK exports go into the Euro area, which is currently enjoying some very rapid growth, in the 2.5%-3% region, and more in places. But that is largely because it is recovering from the very tough times of the recent months and years. Before long it will undoubtedly revert to trend, which is bad news for UK exports and therefore UK economic growth. America is a smaller export market for the UK, but the same sort of thing is happening there too.

So it is hard to be optimistic. In 2007 the Bank will be coming under pressure to cut rates again. Without effective restructuring both in the UK and the EU (with their high taxes and over-regulation), I fear we might be hearing more about stagflation pretty soon.

By Dr Eamonn Butler, Adam Smith Institute.

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Guest Alright Jack

Stagflation is a word that Britain has not heard since the days of Harold Wilson, but now Tony Blair might have to start looking it up in his dictionary.

The Governor of the Bank of England, Mervyn King, reckons there is a 50% chance that the Monetary Policy Committee will exceed its 2% inflation target (for the fist time) in the next six months. Meanwhile, unemployment is rising.

Growth looks strong at around 2.6%. But is it really? Remember that since 2004 some 600,000 immigrants from Eastern Europe – plus maybe 400.000 illegals – have joined the workforce. True, four-fifths of them may be on the minimum wage, but that is still a big boost to economic growth. Yet this boost will not last: most of those who want to come are already here, and the next wave of immigration, from Romania and Bulgaria, may well be resisted by the politicians.

Underlying growth is thus less than it appears. And inflation is higher than it appears. Gordon Brown has adjusted the calculation of the inflation index twice, lowering it each time. The Governor had hinted that he regards the current target, the Consumer Price Index, as inadequate. Thanks to China, the cost of imported luxuries like electronics and designer T-shirts is falling; but thanks to the government, essential expenditures like council tax and utility bills are soaring.

Meanwhile narrow money is growing at 5.4%, and broad money at 13.1%, which means that more inflation is in the air. The MPC will be minded to put interest rates up to 5% or even 5.25% to choke it off. But they might well over-choke it, because there is other bad news around. About half of UK exports go into the Euro area, which is currently enjoying some very rapid growth, in the 2.5%-3% region, and more in places. But that is largely because it is recovering from the very tough times of the recent months and years. Before long it will undoubtedly revert to trend, which is bad news for UK exports and therefore UK economic growth. America is a smaller export market for the UK, but the same sort of thing is happening there too.

So it is hard to be optimistic. In 2007 the Bank will be coming under pressure to cut rates again. Without effective restructuring both in the UK and the EU (with their high taxes and over-regulation), I fear we might be hearing more about stagflation pretty soon.

By Dr Eamonn Butler, Adam Smith Institute.

We've been in a stag-inflation for bloody ages.

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I fear we might be hearing more about stagflation pretty soon.

By Dr Eamonn Butler, Adam Smith Institute.

Too right Mr Butler, stagflation will be on the tip of many tongues before very much longer.

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About half of UK exports go into the Euro area, which is currently enjoying some very rapid growth, in the 2.5%-3% region, and more in places. But that is largely because it is recovering from the very tough times of the recent months and years. Before long it will undoubtedly revert to trend, which is bad news for UK exports and therefore UK economic growth.

I see. So they consider economies that have high productivity and a strong manufacturing base to have a low 'trend' growth rate? In a few years time the UK will once again be the sick man of Europe and Germand and France will be powering ahead. They have yet to have a debt-driven consumer boom.

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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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