So, the Bank of England wimped out and opted for a cowardly 0.25 percent increase. Further rate increases will be needed if inflation is to be brought under control.
There is no mystery why economies suffer from inflation. If central banks prints a pile of money, prices will go up. Remember that old line about "too much money, chasing too few goods"? Well, it happens to be true.
So what have our monetary maestros at the Bank of England been doing recently? Well, take a look at the chart above. The printing presses are working a lot harder these days. Back in 1999, the money supply was growing at a conservative 3-5 percent a year. Currently, the money supply is growing at around 13 percent a year.
Where has all this cash ended up? Yes, the housing market. Forget all this rubbish about scarce housing supply. Think plentiful credit and you begin to understand what is going on. The commercial banks are lending huge amounts of cash and borrowers are using this money to bid up the price of houses. Rising house prices encourages speculation, which in turn, encourages people to take out loans. It is a nasty cycle of credit that will leave most naive participants a lot poorer when it all goes bust.
If Bank of England is serious about reducing inflation, it needs to get monetary growth down to single figures. So, please can we have another rate increase please next month. One hike is not enough.