Tuesday, October 19, 2010

Latest Ernst & Young ITEM club quarterly forecast

Rates to stay on hold till 2014, says Ernst & Young

The Bank of England base rate is set to stay at 0.5% until 2014, according to the latest Ernst & Young ITEM club quarterly forecast. The report says the risks of overheating and deflation in the British economy have both been exaggerated. As a result, while increases in commodity prices and value added tax (VAT) will keep CPI inflation above its target over the next year, the ITEM club forecasts CPI to move below the 2% target from January 2012 when the next VAT increase drops out of the calculation. “Despite the mounting tensions within the MPC, this prospect is likely to keep Bank base rate on hold next year and the forecast does not see it increasing until 2014,” says the report.

Posted by jack c @ 09:07 AM (3007 views)
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43 thoughts on “Latest Ernst & Young ITEM club quarterly forecast

  • Look at Japan’s interest rate history if you want to understand the future of the UK’s interest rates.

    Hint: After recently reached the dizzying heights of 0.6%, they have now dropped back to 0.1%. Food for thought.

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  • yes and houseprices have fallen over 19 years…as much as 90% on tokyo central and 70% around the country

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  • To me the proclaimed prospect of a long period of low interest rates in the UK; is an overplayed bluff which some of them perhaps believe. Rates may remain low for the rest of this year, but by the end of next year I doubt it.

    Japan is a very different context with a population which has persistently saved and largely put their savings into JGBs (like gilts) whilst avoiding personal debt. The UK population have negligible savings and considerable personal debt. Taking a wider view of debt then just public sector already places the UK in as bad a position as the Japanese.

    The Japanese have not managed to pull themselves out of their hole during 20 years where the rest of the world were prepared to buy vast quantities of imports. Neither we nor they have the same prospect at present. The UK is massively dependent on international trade and if this sags as we enter a protectionist era then the GILT rates will rise and the MPC rate will follow – a night follows day.

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  • looks like we will be building houses out of our gold investments soon lol

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  • BOE’s plan to get everyone to spend – no matter how high inflation gets.

    Sterling being sacrificed on the altar of high house prices.

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  • sureseam

    japanese are like that now but in 1985-1991 they spent like crazy and put all their money in the stockmarket and other risky things.

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  • general congreve says:

    @3 – This is the beauty of it. If we don’t raise interest rates we’re doomed, if we do, we’re doomed. Well, by that I mean, in the first scenario we’re all doomed to high inflation, which will erode savings and stifle the economy (but some will ultimately benefit by house prices falling in real terms), or in the second scenario, house prices will fall along with the rest of the economy, the banks/the elite will fall as a result, and people’s savings will be lost with the banks etc.

    Unless they can do high interest rates and print obscene amounts of money to bail out the banks, but surely those two things just counteract each other and more money printing will lead directly to yet higher interest rates, so it’s a hole the banks can’t be dug out of. I’m pretty sure that’s the case, as you can’t get something for nothing. So savers are either going to lose in the end through inflation eating their savings or bank collapse disappearing their savings.

    My guess is they’ll do everything in their power to follow the more insidious approach of low interest rates and the consequential inflationary path, to keep the banks propped up, keep the govt. propped up (high interest rates will cause a massive problem with our sovereign debt) and to rob savers the subtle way, as opposed to outright bank collapse that would risk widespread civil unrest.

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  • HPW,
    The Japanese also tried to prop up house prices by massive injections of cash (fiscal boosting). It didn’t work becuase of crowding out; selling bonds to NBFIs to raise cash for government spending doesn’;t work because it removes funds that are required elsewhere. They also tried quantitative easing to no avail. What makes you think the British will be more successful?
    N

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  • general congreve says:

    @5 – HPW, please read @7 and then bearing in mind what you said @5, that I totally agree with, I hope you can see why I hold the regular point of view on here that I do. By the way, it wasn’t me who posted that article yesterday, it was Mark. I noticed you were confused in a final comment made in that Alan Johnson article from yesterday after LP had stuck his two pence worth in.

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  • Yeh me bad, very bad… well at least we found the traitor lol

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  • I wholeheartedly agree that the “risks of overheating and deflation in the British economy have both been exaggerated” but it is absolutely impossible to forecast interest rates that far out. They know that.

    Several reports have pointed to potential house buyers believing that interest rates will go up soon. E&Y are a private outfit but this does seem like an attempt to soothe away this particular worry. I think there is always the temptation for influential outfits like this, to stray beyond straight reporting. It is probably just a well meaning attempt to calm down the fear that is growing in some sectors of society. The trouble is that, well meaning or not, it damages the credibility of their forecasts

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  • i think the risk of inflation outweighs everything, this is most likely to get the peasants angry imagine paying £30 for a loaf of bread or £100 for a dozan eggs

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  • general congreve says:

    @10 – Not pinning the blame on you for anything mate, you were entitled to post the article, and as you know, I got temporarily suspended for complaining about people thinking otherwise. It was just that a couple of people (who hadn’t bothered to read the thread I started about the whole sorry saga) decided it was me who posted the original article too and used the excuse to throw yet more unjustified accusations my way. Less I say about them the better I think, pretty wound up about it.

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  • typo me thicko today can’t spell “dozen”

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  • GC i don’t hold you in any way at fault, I like the fact you stood up for people unlike that quiet guy

    I was fuming with quiet thingy

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  • It’s not just the peasants who’ll get angry. I paid just over £8 last night for two pints and two packets of nuts.

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  • Shhhhh!

    Quiet please.

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  • flashy trust they were huge packs of nuts for that kind of money

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  • no they were those bastar* thin packs of slightly stale nuts called Nobbys

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  • so they nobbied you on price lol

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  • Jees Flashman

    I remember the days days when you could go out with a tenner, have a good drink, a 1/4 pounder with cheese to soak it up & still have enough left over for a bus ride home. And I’m only 41, and no I didn’t start drinking when I was eight or live up North.

    Still think how much good paying those prices is doing your liver. A community service if you like.

    Maybe Uncle Tom is onto a good thing waiting to buy up bust pubs.

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  • Tescos is snapping up bust pubs to open their crappy stores in

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  • general congreve says:

    @22 – Yep, they’ve just bagged one round the corner from my mate’s house. Helps that it was mysteriously burned out a few months after it went bust and after Tesco’s were initially refused planning permission 😉

    To be fair it was a scabby chav pub and a tesco’s local on his door stop gets his support, cos he won’t need to walk to Sainsbury’s anymore.

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  • Mark

    I don’t actually get this Tesco bashing.

    We’ve got 2 Expresses near us, they’re both much better than the previous M&W stores that were there before.

    Eight pints of milk and a loaf of wholemeal bread £2.74.

    Open ’til 10.00 at night and a pretty good selection of stuff, in fact you could pretty much do your weekly shop there and not really be paying anymore than at a big supermarket.

    Maybe if things get really tuff, we could get Uncle Tom to buy the bust pub and hold a bread and milk party, how’s that for a compromise.

    Yeah, now we’re rockin.

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  • bashing supermarkets is a pastime for me..lol the real reason is this

    1) We have too many supermarkets for the population

    2) Supermarkets drive farmers out of business

    3) Supermarkets drive small shops out of business

    4) The are purely profit driven however give customers the impression they are almost doing them a favour

    Some small towns in this small country we live in have 5 or more supermarkets, why?

    Why does tescos buy up whole shopping areas? to stop competitors

    They are an aggressive company who treat people like they are idiots, treat farmers like they are charities to only go bust, they control 10% of our petrol through another company it owns, they control councils, ride over public opinion , ex managers state they were treated like slaves and had to perform.. the list goes on, these nice cutesy adverts are not the real Tescos, they will destroy you as soon as look at you, ask any poor farmer who loses 6p per litre of milk they supply them..

    is this the britain we want? fake cheeses, cheap foreign imports, a supermarket on every corner, no choice other than what the supermarket wants to give us, highly processed cheap foods designed to be addictive

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  • Mark

    I must admit it seems crazy buying a pint of milk for 25p.

    However I think farmers missed an opportunity to get control of a home delivery service (battery powered at that with properly recycled containers).

    If you use you brain and read labels I don’t really think they offer you much different stuff to any other shop amd there’s nothing to stop people buying ‘super fresh organic blah blah, if they so choose.

    And if we didn’t need so many supermarkets they wouldn’t be profitable I guess, so can only assume they are.

    What a convenience junkie I must be.

    I did buy fresh apples and apple joice from direct from a Blackmore Estate the other day though, so don’t hate me too much.

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  • Mark

    I understand exactly what you mean – in my medium-sized hometown that now has a whopping great every supermarket chain but Tesco’s in it – and one public pool, has just demolished the pool so that Tesco’s can complete the set.

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  • I agree farmers have missed some good chances to supply direct, but I suppose they are tied by overheads, subsidies etc and feel compelled to take what looks a like a good contract, however the supermarkets build in terms they can change price, cancel order etc at any time, so you are just about to supply 300,000 cabbages and tescos phones up and gazunders you what do you do?

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  • bashing supermarkets is a pastime for me..lol the real reason is this

    That’s the best post I have read on HPC in quite a long time.

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  • I’m sure various co-operatives have been tried before, but if tracks et al had to go through a co-operative to get to uk produce, it would stop them playing one off against another.

    I don’t have alot of sympathy for people who own all the food and land yet are too stupid to sort out a way of getting a fair price for their produce.

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  • the number cruncher says:

    There is a lot of praiser for farmers and a lot of scorn for the awful effects of unfettered capitalists and the free market system in the guise of the supermarkets.

    Are not farmers the most heavily subsidised individuals in the country, receiving massive state handouts and huge tax breaks unavailable to other industries?

    All of these state handouts, tax breaks etc get capitalised into the value of land, pushing up prices and ultimately this doers have a small affect on house prices.

    I would love to hear an explanation for the sudden reversal of political stance from Mark and hpwatcher

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  • no reversal from me.

    1) I agree subsidies should be stopped, as far as I remember they were brought in to stop farmers all growing the same produce, however this has not really worked.

    2) supermarkets have too much power and monopolise, they will work together to push farm prices down. this is not good for the economy.

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  • the number cruncher says:

    Is that not what all capitalists do – form monopolies and abuse their market power?

    I agree that most industries form monopolies, which are not good for the economy. The biggest state monopoly being land as MW is quick to remind us all, whether it is for farming, supermarkets or houses

    I have lived in the ‘country’ for nearly all of my life and farming in this country is going just the same way as other big businesses, give it 50 years and we could have huge farm management companies forming massive monopolies.

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  • Such retrograde views, as if progress happens on whimsy and personal preference. Supermarkets are popular because there is demand for them. They offer a level of choice and convenience that wasn’t available even 20 years ago. They operate in a hugely competitive sector and work to wafer think margins, offering customers the benefits of economies of scale. I’m sure there are downsides to supermarkets but for now they are here to stay. Perhaps time to stop clinging to the infantile notion that the world is made to ones image or the image of ones imagined standards, morals and preferences – a hobby on this site it would seem.

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  • Bellweather let me give you an example as to why they are popular or at least give the consumer no choice

    there is a local organic shop near us, operated by a farm, when this shop gets a product in you can guarantee Tescos will get the same item in stock a week later and offer it for half the price, once the farm shop stops selling the item so does tescos, surely this is an outright attempt from tescos to put this shop out of business, i would say this farm shop only has a few more months life left in it before it closes..

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  • sibley's b'stard child says:

    Exactly MW; it’s no different to the coffee chains a la Pret & Starbucks that will saturate a local market with their stores – loss leaders in many cases – simply to squeeze out the smaller competition.

    But, then, i’m sure it has everything to do with demand and nothing else.

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  • the number cruncher said, “Is that not what all capitalists do – form monopolies and abuse their market power?”
    A monopoly, so long as it’s not one of a few natural monopolies (the most obvious case would be diamonds), is not sustainable (it costs money to keep, which reduces the effective barrier height). Some individuals will certainly attempt to secure themselves a monopoly (that’s not capitalism though, that’s just greed – we don’t need capital, or even the definition of property for this – I want the cake, I take the cake – does not matter if there is a defined owner, however much I like John Lenon’s, Imagine) and the hight the barrier to entry the better (so natural + govermental is their ideal). Furthermore a true capitalist will argue that non-government-assisted monopolies should exist whilst the barrier height (without state-aid, such as preferential regulation, tarrifs, subsidies, etc..) implies it’s existence is feasible and that a forceable breakup of these does more harm than good and that the way to minimise such outfits (which most agree are generally non-optimal) is to implement free trade (the very thing some may blame for monopolies).

    Many monopolies are bad for society, for sure, but they are not the result of people being capitalists, they are the result of people being greedy.

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  • Bellweather,

    I’m sure Tesco would like the farm shop of which you speak to go out of business, and they may well be doing exactly what you suggest, a saturisation. The big supermarkets are competing with each other so fiecely (together they have a huge market share) that they will happily spend money on forcing out small, local rivals – how much of this is due to the regulatory system they, and the local shops must abide by though? I’m no expert but I imagine it would be worth looking into ion some deatil.

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  • mark wadsworth says:

    TNC at comment 31 is right to point out that huge subsidies to farming, some of which indeed just lead to higher rents and higher land values, but a lot of those subsidies get passed up the chain to subsidise supermarkets.

    So you often hear famers wailing that it costs them 50p to produce a litre of milk but the wicked supermarkets only pay 25p. So why do the farmers do it? How to they stay in business?

    Quite simply because the taxpayer gives them another 30p per litre in cash.

    There is no reason why shoppers should pay more than market value for milk, or why supermarkets should pay more than market value to the farmer, and if that happens to be 25p then so be it.

    PS, I love supermarkets as places to shop, they are brilliant. What I don’t like is the way that they abuse the planning system. The answer is, local councils should refuse to allow supermarkets to buy land or get planning permission – instead, the council should build the supermarket building to order and rent it out to the supermarket. (it’s like LVT but simpler). If Tesco don’t want to pay the rent they can f- off and Sainsbury’s can move in.

    That way all the ag subsidies will flow up the chain, via the supermarket and to the council who can spend it on nursery places or something. So yer resident gets cheap milk and a nursery place. What’s not to like?

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  • the number cruncher says:

    bellwether @ 34 How true, but I am afraid it is man’s folly to try to understand how the world around him works and to continue to want to shape the course of its destiny. My philosophy, and the inner child within me you so correctly identify is the source of my moralising, is to say that my existence on this planet does make a tiny difference for the general good and when I die I will have made a small contribution however vanshingly insignificant that is.

    But no one can endue the ‘total perspective vortex’ and survive

    or from a different perspective:

    51ck-6-51x

    My definition of capitalists is different to yours, as I am sure my definition of socialism is different to yours, as my definition of what a nice shade of green is to yours. Your definition of a capitalist is as realistic as me saying socialism creates equality. The reality is that there is no pure form of ‘capitalistic’ systems and those that claim to be capitalistic evolve into oligarchies and monopolies, irrespective of the wishes of neo-classical theorists hunting for ivory tower definitions.

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  • oh well back to testing drugs on unsuspecting africans , anyone want to highlight why this is done by the huge drugs companies? and why any waste Tescos food production in Africa such as mishaped beans are not allowed to fed to the locals or sold to locals at a discount?

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  • This from annother thread on another site I looked at recently (http://schooleconomicscience.org/phpBB2/viewtopic.php?t=481&sid=828c8a35750f4bbaa543937bff6270a8)

    “In the late 1940’s an economist named Leon MacLaren wrote a book entitled Nature of Society. The first part follows Henry George’s arguments on the laws of rent, interest and wages quite closely. It examines the fundamental division of “wealth” into “rent” and “wages”. In the second part of the book the author deals with “secondary claims on wealth” and shows how, in an economy with all land enclosed, the economic rent of land is taken by various claimants. These secondary claims include tax, business rates, interest on loans used for investment in capital a landlord’s claim and profit. You may find this analysis helpful in establishing the relationship you seek between property income and economic rent of land.

    For example this analysis reveals that for owner occupiers (e.g. large supermarket chains) what is recorded as profit includes the landlord’s claim to the economic rent since it is retained and not paid to a third party. By comparison a competitor that was equally efficient but did not own the site it occupied would appear less profitable in its company accounts because of the obligation to pay a landlord his claim.

    In the former case the profit includes an element of property income whereas the latter case it would not.”

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  • Greenmind

    You’re getting onto my favourite bug bear.

    That shop/premises rents kill business plans and the opportunity to build/purchase ones own commercial premises is virtually non existent as they’ve all been bought up and today’s business people starting out are being held to ransom.

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