The Great Debate UK
-Laurence Copeland is a professor of finance at Cardiff University Business School and a co-author of “Verdict on the Crash” published by the Institute of Economic Affairs. The opinions expressed are his own.-
Whether their problem is narcotics or alcohol or simply junk food, addicts are usually planning to give up… but not yet. In the meantime, there are always plenty of excuses for delay.
And so it is for the Bank of England. The inflation rate will soon be double the 2% target, but they still judge it is too soon to raise rates above their current all-time low level. Moreover, yesterday’s announcement makes clear there is no end in sight for the gilt buying spree (the “Asset Purchase Programme”).
The Bank’s masterly inactivity is predicated on the MPC assumption that there is still plenty of slack to be taken up in the real economy. As I said here earlier this week, I am less convinced about the extent of the spare capacity in the UK economy today than they are, and hence I see far greater danger of further inflation than the Bank apparently does.
-Kathleen Brooks is research director at forex.com. The opinions expressed are her own.-
Looking through the minutes of the Bank of England’s policy meetings for the past year, there are a couple of patterns that you see emerge. Firstly, that rates are on hold, and secondly, that the UK’s elevated inflation rate is temporary. Now the European Central Bank has joined the chorus. ECB President Trichet recently sounded confident that prices will moderate, even though consumer prices rose above the ECB’s target rate of 2 per cent in December.