Friday, December 14, 2007

UK Economy – BoE cannot act aggressively if the credibility of low inflation comes into question

A stress-test for Britain’s economy

"Why, then, is the UK economy deemed particularly vulnerable by many observers? There seem to be six reasons: first, the UK’s housing bubble is deemed bigger than that of the US; second, the UK is particularly dependent on finance and business services; third, the public sector is no longer in a position to increase employment rapidly; fourth, the size of the fiscal deficit makes it hard to counteract a severe downturn; fifth, in a housing downturn, the effectiveness of monetary easing might be limited; and, finally, the Bank of England is proving far too conservative."

Posted by happyrenterz @ 12:12 PM (1114 views)
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5 thoughts on “UK Economy – BoE cannot act aggressively if the credibility of low inflation comes into question

  • I read down until I saw “………….provided it retains its credibility over inflation.” He’s referring to the BOE ! (wtf) Sorry have I missed something ?

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  • 🙂 I think the point is that they have not slashed the interest rate by .5% like the Fed. And also since the effective interest rate is now higher than the BoE rate (high LIBOR etc) the BoE can feel justified in dropping rates to get things back to the effective interest rate it likes 5.75%

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  • waitingfor hpc says:

    but then people like me with SAVINGS will move out the pound… I am alreday buying other currencies ready for this.

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  • Ewww, the article looked good until he said

    “With a floating exchange rate, aggressive monetary loosening would probably lower the (in my view, overvalued) exchange rate against both the dollar and the euro substantially. That would help support and rebalance economic activity across the country.”

    Obviously the most immediate solution for an alcoholic in distress is to give him another drink.

    But rehab eventually will beckon.

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  • [i]If there were a big downturn, some (perhaps many) immigrants would return home, particularly those from other members of the European Union who know they can return in better times.[/i]

    So what does that tell you about the buy-let segment then ? I think the govt will be inclined to bring in more drastic measures like forced deportation on mass scale. Once the Q at the benefits start to grow things will change, read yesterdays report on 10000 work permits being issued in error !!

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