Monday, July 14, 2008

The MPC have abandoned the wheel, and jumped from the car

Bank of England can do little about inflation in current climate, King says

June's CPI will be published tomorrow, and analysts believe that it will have risen to 3.6%. The British Retail Consortium said last week that food prices were 7% higher in June than a year earlier, the highest annual food price inflation since the series began. The MPC's role is to keep inflation - as measured by their consumer prices index - at 2%.

Posted by paul @ 05:38 PM (1534 views)
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18 thoughts on “The MPC have abandoned the wheel, and jumped from the car

  • Isn’t this eerily reminscent of the early stages of the US recession – before the fed gave up trying to keep runaway inflation down?

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  • I’ve always thought the idea that the MPC could control inflation was a bit of a myth.

    It’s like a cheap insurance policy that doesn’t pay up – you don’t realise you’ve been wasting your money until it’s too late.

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  • It wouldn’t surprise me in the least to see the government change the MPC’s remit due to ‘unforseen circumstances’, to allow the reduction of interest rates, enabling the £ to devalue alongside the $.

    The whole thing of the BoE’s independence was nothing but a political stunt anyway, to make the population think that interest rate setting was in safe hands. Funny how they used a measure of inflation that didn’t include house prices, wasn’t it ?

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  • The awful truth is that the Bank of England has full control over the money supply, and therefore very good control over inflation, when they want to exercise it.

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  • The reason the UK has been so crippled by foreign food costs is because the GBP has devalued by around 23% since this time last year, and the reason for that was because (as Nadeem Wayalat over at Market Oracle has pointed out on many occassions, whenever house price inflation dipped below 9%, the MPC has slashed rates, regardless of inflation. In other words, they never were paying enough attention to inflation.

    This is akin to a night watchman getting drunk, bandits bashing in the castle gate, then the watchman claiming that there’s no point raising the alarm, because the castle’s already stormed and he’s got a hangover.

    I still don’t understand how badly the MPC members would need to get it wrong before they lost their jobs, and who exactly is making sure they do their jobs. Still, what would I know, eh?

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  • I think this means the BoE expects a deflationary depression and they don’t want to overdo the deflation.

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  • it_is_going_with_a_bang says:

    I doubt Alistair even bothers to read the letters from the BOE.

    “which forced King last month to write a letter to the chancellor of the exchequer, Alistair Darling, explaining why it had surpassed its target by more than a percentage point.”

    WOW. I wonder how much sleep he lost over penning that letter. Not alot I would think.

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  • “I wonder how much sleep he lost over penning that letter. Not alot I would think.”

    That’s also part of the farce – the writing of the letter to the Chancellor was always going to be a cozy ceremonial absurdity, where this month’s high inflation can always be explained away as “medium term inflationary projections over two years mean that we don’t need to pay any attention to these figures”. Which they’ve been saying for well over two years now. Who is watching the inflation watcher?

    And the reply from the Chancellor is, predictably “Ooh, okay then. Well done. Keep up the good work. See you at the JP Morgan dinner next week.”

    That’s what you get when you allow the Bank of England/MPC to be poacher and gamekeeper on inflation.

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  • The BOE was not in control of inflation when it was low and they are even less in control of it now.

    By all historic inflationary measures, interest rates were too low for too long. Now that mistake is coming back to haunt us at the worst possible time.

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  • Paul @ 5. Bang on.

    MPC minutes of late…..House price inflation is being crippled, lets slash rates aka Aug/Sep 05, woohoo look we have stopped the property bubble from busting therefore avoiding a recession as our economyt is the housing market.

    Oh hang on its not working this time, lets cut them again, doh still not working HPI falling fast, slash em again. Dammit! We have imported all this inflation…do not let them off the hook

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  • I agree with Paul.

    As John Major said, our inflation is running much higher than 3.3%.

    It would be nice to get our own house sorted out, but there is a tidal wave of misfortune coming our way from the USA, right now. Because their big mortgage companies are in real trouble. How much? I don’t know, but it’s going to be expensive to fix.

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  • it_is_going_with_a_bang says:

    3.3% what a complete pack of lies which just breeds contempt for the BOE and this government.
    A “current climate” brought on by the BOE in an vain attempt to protect house price inflation over the years.

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  • Agreed Paul
    Disagree Cyril

    IMO the Bank of England have very good control over inflation by controlling money flow and interest rates.

    They may not be very good at their jobs and have a personal vested interest in their own properties and BTL portfolios.

    If they had put up interest rates a year ago (and not dropped them in Aug/Aept ’05 then the situation would be very different now.

    Inflation would be much more under control as the GBP would be 20% stronger and we import most things.

    Oil would effectively be 20% cheaper as it’s priced in Dollars.

    Our exporters would be complaining (we haven’t got that many and they usually complain anyway) IMO if a product is best in it’s field people will pay 20% more for it anyway.

    The housing market may be in a more progressed state of collapse (but unlikely as the bubble wouldn’t have grown so large – ’05 cut).

    House purchasers have plenty of clear warnings not to over extend, if they know the bank is strong and won’t bale them out – they may be more careful.

    Frankly their maybe alot to consider but IMO the B o E have not been strong enough and they don’t deserve whatever they are being paid as frankly they’ve failed to keep inflation under control.

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  • planning4acrash says:

    Some of you say that we run the risk of a US style currency run. Forgetting that Sterling has PLUNGED from 2.10 to 1.88 since last summer. OUR currency’s fall is only matched by our ignorance of its weakness, and the theft of our way of life.

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  • Wait for the run on gilts, and the howls of dismay as pension funds get devasted..

    Those who are on the home straight to retirement, who thought they were sitting on a fortune of bricks and mortar, with a fat pension into the bargain; are suddnly going to discover that they are a lot poorer than they thought..

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  • tyrellcorporation says:

    Gold has surged again in the last 2 weeks. Up from about $890 to $975 an oz.

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  • Mark Wadsworth says:

    “The MPC have abandoned the wheel, and jumped from the car”

    Brilliant summary. LOL!

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  • P4AC…

    I remember the days when the UK was talking about parity with the dollar! so I reckon $1.88 ain’t gonna lead to the end of money yet. What say you?

    The theft of our way of life you say. I bet you don’t remember when wilson said “the pound here in Britain — in your pocket or purse — is worth any less” – 1967 , go look it up, I’m sure you’ll find out all about it.

    “OUR currency’s fall is only matched by our ignorance of its weakness” – you know you assuredness that what you say is gospal is a sure sign that you, like the rest of us, are just guessing what’s going to happen. The only difference is that most of us aren’t SO SURE that they are right.

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