The unsurprising news that inflation has become the enemy of economic recovery, largely thanks to the not-so-neutral effect of this year’s VAT hike, has seen the last 24 hours bring about a gradual softening up of press and public for an increase in the base bank rate.
The general view is that putting up the rate to 0.5% should strengthen the pound in order to tackle another key inflationary factor of ever more expensive imports. Any impact felt from increased lending costs would be countered by falling prices, thereby seeing a largely neutral but nonetheless stabilising effect on inflation, or so say the experts.
Of course, the main problem with this particular theory is that most commodity prices take as long to reflect adjusted exchange rates as banks employ in passing on an increase in interest rates to savers (as opposed to borrowers). So things are likely stay bad for the average punter for some considerable time to come. Which, in turn, which means that ConDem ministers will need to devise something more imaginative than a diversionary attack of council fat cats. Especially when a smirky financial sector continues to take the piss over bank bonuses.
Update: Bank downgrades growth forecast.
Update: Bank downgrades growth forecast.
2 Comments:
The real issue is that at least two of our major retail banks are bust, and this presents problems for the ones that are not quite bust.
It's all down to the property market. If the price of property is allowed to fall to a natural level the retail banks will lose a shed load of money and not be able to continue with their normal lending practices. This, in turn, will cause more problems and more knock on effects.
Quantitative easing and a prolonged period of inflation was thought to provide an inelegant but relatively painless way out of the mess.
Unfortunately our European colleagues have shown that the only way out of debt is to cut spending, and cut it fast.
Anon: "Unfortunately our European colleagues have shown that the only way out of debt is to cut spending, and cut it fast."
Not so. The only European countries to be reducing debt are those that actually produce commodities for export... those that have chosen the path of deep cuts are presently doing worse by all World Bank numbers, as well as UN life quality parameters.
CamCon mouths the truism "we must export more" but is ideologically unwilling to do what successful exporters do; build business, subsidise investment, protect markets, train a workforce, control capital flows, provide centralised government incentives, scare off or legislate against transnational sharks owning or controlling interests in UK firms.
CamCon is also doing his damnest to support house prices and little to cap rents. He actually WANTS the pound to be STRONG! He actually WANTS consumer credit to be EASIER!
Both Blair/Brown and now Cleggy/Cammy profess this naive belief that somehow intellectual copyright - arts or science - will provide an answer. The Knowledge Economy has been a busted flush for the last decade. Every BRIC government has a Knowledge Economy strategy bigger & better than ours - and they have the factories and markets to match.
There ain't no new Brit iPad, no new Anglo Viagra, not even a new Hello Kitty Kymru charging in over the horizon to save us all...
Say hello to stagflation. Say hello to precarity.
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