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Alistair Darling Must Not Tamper With Inflation Target, Tim Besley Warns

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Alistair Darling must avoid at all costs the temptation to tamper with the Bank of England's inflation target, one of the members of the Monetary Policy Committee has warned.

Tim Besley, the MPC member who voted for a quarter percentage point rise in interest rates at its meeting earlier this month, said following proposals from politicians and economists to change the type of inflation targeted or the length of the MPC's target horizon would be "entirely counterproductive".

In an interview with The Daily Telegraph, Prof Besley also admitted that, at their current level, interest rates are dampening growth in the economy, but that they should be raised in order to prevent more pain later.

The MPC is obliged to keep the Consumer Price Index as close as possible to 2pc, targeting the measure two years in the future. With the CPI having jumped to 3.8pc in June, and expected to leap higher still in the coming months, some economists have argued that the MPC should instead target "core inflation", which strips out the prices of volatile goods such as food and energy, giving it more leeway to cut borrowing costs.

However, Prof Besley said: "That won't change the dilemma. It's like saying if we relocate the goalposts and my village team is playing Real Madrid, we'll concede fewer goals. Changing the goal will not change the fundamental dilemma we face, which is responding to two quite serious economic shocks.

"Worse than that, it risks further undermining the credibility of the system - that as soon as things get tough you decide that you were unhappy with the mandate. It would seriously undermine the credibility of anti-inflation policy in the UK if at the first time we face tough conditions there is discussion of changing the objective. So I think it would be entirely counterproductive to move in that direction now."

In comments which may also surprise observers, Prof Besley, who was the only one of the nine MPC members to vote for higher rates this month, admitted that, at 5pc, the base rate is already restraining economic growth.

He said: "Are rates restrictive? They are mildly restrictive, yes. But, given the prospects for inflation, a mildly restrictive rate is justifiable."

Peter Spencer, of the Ernst & Young Item Club, has suggested that unless the MPC moves to targeting core inflation it risks sending the economy into a deeper and more painful recession than necessary. The Conservatives have also indicated that they might consider giving the Bank more discretion over how soon it is obliged to bring the CPI back to target.

The credibility of the system doesn't exist anyway. No one believes the inflation figure, most people feel the BoE is to blame for this mess because it hasn't stopped printing money, now one of the MPC is complaining over the fact the goalposts might be moved.

Can we expect open warfare between various MPC members??? Sorry what am I thinking that might actually stimulate debate amongst the sheeple and awkward questions might be asked.

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Presumably Blanchflower will now fire a volley from the other side of the parapet.

On the Today 0615 business slot, the pontificating pinstripe (aka 'markets expert') they wheeled on today opined that the CPI could bust 5%, 'thereby reducing the prospect of IR cuts'. That says it all about the credibility issue, IMO. It's seriously being suggested that inflation might go 150% over the supposed target, without any prediction of IR rises. Targeting inflation - yeah, right.

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Guest KingCharles1st

So looks like a number is more important than a result..

So are we now going in for trench war mentality stylee financial ignorance or what?

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  • 396 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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