Belt up, inflation is sitting on the runway and is about to take off. According to a recent IDS survey of wage settlements, private sector pay increases are running at an average of 4 percent. Today's wage settlements are tomorrow's price increases.
Normally, this news should send the MPC into a panic. Some substantial interest increases would follow. However, these are not normal times. The UK banking sector is in trouble and the Bank of England have decided that some substantial interest rate reductions would be preferable.
However, inflation isn't going away anytime soon. The MPC should think long and hard about any future interest rate reductions. Saving a couple of cash strapped banks could generate more serious problems down the road.