Thursday, 7 June 2007
More cowardice from the bank of england
The Bank of England wimped out again today. Faced with a choice between controlling inflation and protecting the housing maket, the MPC chose the housing market. Rather than increase interest rates, the committee voted to delay the inevitable in a futile effort to hold off the coming crash.
The Bank is now fast losing credibility. It simply isn't serious about controlling inflation. It prefers to wait and see, hoping that the future will bring favorable price developments. Perhaps, it will luck out and energy prices will fall. Maybe, wage setters will suddenly forget that retail prices are rising at almost 5 percent a year and voluntarily take a real wage cut this year. Alternatively, the UK could be flooded by yet more cheap Chinese goods, that will keep consumer prices down. Central banks sometimes can get lucky.
However, luck cannot counter the harsh reality of monetary economics. Inflation is a not hard thing to understand. It created by excess monetary growth. At the moment, the UK's central bank is producing money at a growth rate of 13% a year. With that kind of monetary growth, inflation is a certainty. Sooner or later, the Bank of England will learn the importance of monetary growth. It's a pity that it did not learn the lesson this month.
Despite today's cowardly behaviour, further interest rate increases are inevitable. It is now very likely to interest-rate will reach 6% by the end of the year.
Here is the shameful statement, if you want to read it.