Saturday, April 24, 2010

Base rates: hangover or hair of the dog?

Stunted growth leaves Bank facing interest-rate dilemma

The combination of low growth and rising inflation will present the next government with an interesting choice. The conventional wisdom is that interest rates should rise in response to inflation but that could strangle the property recovery.

Posted by quiet guy @ 02:45 PM (1257 views)
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5 thoughts on “Base rates: hangover or hair of the dog?

  • This is the problem. Why is rising inflation (including house price inflation) giving the Bank of England any dilemma? (oh, apart from because being reasonably wealthy senior economists and central bankers, they have sizeable property portfolios themselves …)

    They have painted themselves into a very narrow corner chasing high and rising house prices like dogs chase butterflies. And now we’ve had the ’emergency’ rate cut to (an unprecedented) 0.5% in place for over a year and we’ve had a Mugabe-style money-printing initiative, they suddenly discover that surprise surprise, the anaemic housing market is now terminally dependent on ultra-low interest rates.

    Hoisted on their own petard as always, the Bank is ignorant, shortsighted and delusional. It can’t kick problems further down the road for ever yet that’s exactly what it tries to do.

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  • fallingbuzzard says:

    I disagree. More new money and more stimulus is coming, and not just in the UK. Obama has to do it or the US will start to sink again.

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  • Straight to another 404 error. Posting articles from ‘The Blunderer’ is a waste of my time.

    I’m not convinced more stimulus is coming, at least for the US. Last time, the crisis caught the banks with their pants down. This time, they’ve had a couple of years to think about it.

    Should the Conservatives win the election, I doubt they’ll stimulate, either. I’m not so sure about the other two.

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  • fallingbuzzard says:

    The decision on more QE to maintain 2% or above CPI requires approval of the Chancellor but the decision lies with the BOE. If any government takes spending cuts seriously, they’ll need to do something to boost inflation so they either need more QE or stepped VAT rises alongside the spending cuts.

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  • fallingbuzzard says:

    Perhaps unlike others I do think CPI will fall back to 1% by end of 2010

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