tag:blogger.com,1999:blog-2948538160252327076.post9164605602492426149..comments2023-11-02T15:48:50.381+00:00Comments on UK Bubble UK Economy: We need less focus and more actionAlice Cookhttp://www.blogger.com/profile/05753570123987780947noreply@blogger.comBlogger8125tag:blogger.com,1999:blog-2948538160252327076.post-4869779984528633382008-06-27T18:08:00.000+01:002008-06-27T18:08:00.000+01:00AsteveYou are quite right in pointing out that bas...Asteve<BR/><BR/>You are quite right in pointing out that base rate is currently 5.0%. I realised my error as soon as I posted it. However, I defend the remaining points I made in my original post.<BR/><BR/>Inflation did peak at over 20% in the early 1980s. It hit 21.8% in April of that year, 21.9% the following month and 21% in June. It averaged 18% for that year (as your ONS link shows) after which it came down rapidly. However, this is hair-splitting. My original point remains valid. The rate of RPI inflation today is a fraction of what it was then, which is why the MPC should not over-react.<BR/><BR/>I don’t accept your point that the MPC is “politically constrained to adopt policies that encourage economic growth”. Unlike the Federal Reserve, they have no such mandate. They are tasked with maintaining CPI inflation at 2%. The point I made in my original post is that inflation at the moment is not being driven by domestic demand, nor by an inflating money supply. Its causes are global and are outside the committee’s powers to affect. <BR/><BR/>I also made the point that wage pressure may in future lead to second-round inflationary pressures, although there is no evidence of the “massive upwards pressure on wages” to which you refer. The point is that the MPC should not attempt to anticipate such pressures as they may prove to be a chimera.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2948538160252327076.post-74122726176072385342008-06-27T13:51:00.000+01:002008-06-27T13:51:00.000+01:00Blimey, young Mark, you talk some twaddle.The BoE ...Blimey, young Mark, you talk some twaddle.<BR/><BR/>The BoE base rate is extremely relevant as it is one of the key factors influencing exchange rates. (Since foreign exchange speculation is done on margin and pays/costs the difference between central bank rates... with risk premiums cancelling each other out.)<BR/><BR/>The current BoE rate is 5% not 5.25% and the idea that 4.5% is "neutral" is subjective at the very best. I don't believe you.<BR/><BR/>Inflation was only as high as you suggest in the mid-to-late 70s:<BR/><BR/>http://www.statistics.gov.uk/StatBase/tsdataset.asp?vlnk=7172&More=N&All=Y<BR/><BR/>At which point debt was tiny when compared to today - and interest rates were far higher too. Inflation on a 1970s scale was devastating - if it happens in today's environment we're looking at a depression to eclipse the great depression.<BR/><BR/>The point about the warning over wages was simple... Everyone realises that there will be massive upwards pressure on wages - and, as a consequence, a risk of spiralling inflation. The MPC are politically constrained to adopt policies that encourage economic growth... raising interest rates will scupper that... the warning about wages is the line in the sand to justify rate rises soon.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2948538160252327076.post-76707647365236067152008-06-27T10:47:00.000+01:002008-06-27T10:47:00.000+01:00Alice,At the moment CPI inflation is 1.3% above ta...Alice,<BR/><BR/>At the moment CPI inflation is 1.3% above target. According to Mervyn King, fully 1.2% of this is due to external factors i.e. the rise in oil, gas and commodity prices. So, raising interest rates as you suggest, will do precisely nothing to reduce this inflation. It would of course reduce GDP growth at a time when it is already weak (the general consensus amongst independent forecasters seems to be in the range 1.3%-1.7%). This alone will raise unemployment by at least 200,000 over the next 12-18 months. You say that unemployment has to rise to around 3Mn in order to bear down on inflation. Well, this rather depends on the scale of the inflation problem. Today RPI is 4.3%. In the early 1990s it peaked at over 10% and in the early 1980s it was over 20%.<BR/><BR/>Moreover the current interest rate stance is not neutral. The neutral rate is estimated to be around 4.5%, so the current rate of 5.25% is already mildly deflationary. Nor is the UK rate low by international standards. The Eurozone rate is 4% and in the USA the Fed has lowered interest rates to 2%.<BR/><BR/>There is of course a danger that workers will successfully bid for inflation-busting pay rises, in which case the BoE has already indicated that it will act. This is what Mervyn King means by maintaining vigilance. Now is not the time to raise rates. Sometimes doing nothing is the best course of action.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2948538160252327076.post-32280940073719540802008-06-27T09:40:00.000+01:002008-06-27T09:40:00.000+01:00BOE independent my arse - Brown and his cronies ha...BOE independent my arse - Brown and his cronies have influence over who sits on the rate setting board for God's sake!<BR/>When Merv writes to Darling about the reasons for inflation being over target, he is merely going through the actions, a game for the gullible UK public to witness.<BR/>Low interest rates have contributed and the decimation of the UK's ability to be anywhere near self sufficient in food, energy, cars, clothes, white goods, furniture, etc.. has left us at the mercy of foreigners.<BR/>We really are in the "Brown" stuff !Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2948538160252327076.post-80533246400022836482008-06-26T22:32:00.000+01:002008-06-26T22:32:00.000+01:00"Merv had a hard time today. Some MPs wanted to kn..."Merv had a hard time today. Some MPs wanted to know why inflation was rising so quickly."<BR/><BR/>I don't suppose he replied "cos you fools won't stop spending money the country doesn't have"<BR/><BR/>NickAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-2948538160252327076.post-20431216694783479582008-06-26T22:10:00.000+01:002008-06-26T22:10:00.000+01:00The MPC are damned if they do, and damned if they ...The MPC are damned if they do, and damned if they don't. The logical choice is to do nothing.<BR/><BR/>I think that the best analogy is of someone trying to steer a soap-box as it careers down a hill at break-neck speed with 2 mile-long strings connected to the steering. A crash is all-but inevitable - and pulling either the left or the right string is all-but guaranteed to give rise to quicker calamity.<BR/><BR/>I think that the MPC have to focus on inflation but do nothing yet, because they need the ECB to raise first... because only higher interest rates Europe-wide will put stop to inflation in food and energy. The BOE is also at the mercy of the Treasury - since if government spending increases, deficit spending will increase - and that, in itself, would precipitate a disaster. What happens in the private sector is nowhere near as relevant... except that companies who give in to wage demands they can't meet through profits are likely to find themselves out of business.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2948538160252327076.post-38324657872645800922008-06-26T19:07:00.000+01:002008-06-26T19:07:00.000+01:00Merv had a hard time today. Some MPs wanted to kno...Merv had a hard time today. Some MPs wanted to know why inflation was rising so quickly.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2948538160252327076.post-66180543701858435152008-06-26T16:18:00.000+01:002008-06-26T16:18:00.000+01:00Somebody seemed to like what he said. Sterling ros...Somebody seemed to like what he said. Sterling rose today.Anonymousnoreply@blogger.com