Dislikedcan i ask for your reason?? thanks...
as we have higher than expeceted CPI yesterday...
will Bank of England increase its rate to control inlation?Ignored
1. The output gap is too large and the economy hasn’t recovered enough from the
last recession. The underlying growth rate is poor and for production to be restored to
its pre-recession level, a substantial amount of monetary stimulus is required.
2. Too many Britons are unemployed and the private sector is incapable of absorbing
the projected public lay-offs. Unemployment is around 3 percentage points above its
structural level and many are set to lose their jobs when the public sector shrinks.
3. Current inflation is high but inflation expectations are levelling off and there is no
wage pressure. In fact, there is a risk than inflation will undershoot the Bank of
England’s 2% target on the medium horizon. The MPC has not lost its credibility as
some critics argue.
4. Consumer sentiment is already very negative as with previous recessions; could
result in a setback in private consumption. The economy cannot afford seeing private
consumption slow much further.
5. Growth in disposable income for households, as measured by earnings growth
minus retail price growth, has been negative for more than a year now. Higher
borrowing costs will squeeze households further and increase insolvencies.
6. Business sentiment – most notable in the all-important service sector – is
deteriorating, albeit from a healthy level. Conditions are challenging and indicators
pointing at a contraction cannot be excluded over the next months.
7. After years of solid expansion, broad money growth, closely associated with prices
according to the quantity theory of money, has now turned negative. This is normally
a very fundamental sign for policy makers not to tighten monetary policy.
8. The UK debt burden is growing rapidly and the cost of servicing debt will rise if
interest rates rise too fast and by too much, as was pointed out by the Governor
recently. Official projections for government debt rely on very optimistic projections
for economic growth, which can be difficult to achieve
9. Exporting businesses need all the support they can get – if the pound appreciates,
the trade balance, already bleeding, could worsen further. Sterling’s true
‘undervaluation’ might be smaller than believed by most.
10. The hawks in the Monetary Policy Committee are losing faith in the need to tighten
monetary conditions. Most recently Martin Weale, who has been voting for rate hikes
since January, indicated that he may vote for rates to be left on hold in the wake of the
latest poor data. We believe that Spencer Dale, the BoE’s chief economist, has similar
considerations.
regards Ingmar.
~~nice post...i have learned a lot..
