Speaking at the inflation report press conference the Governor of the Bank of England, Sir Mervyn King, said that, just like twenty years ago when he presented the first of these reports, ‘…a recovery is in sight’. But he ended by saying that the road to recovery will be harder than in 1993.
Despite unemployment being too high and output lower than that of five years ago there was cause for optimism he said.
He then put the weakness in overall output down to sharp falls in construction but said that this was ‘unlikely to be repeated in 2013’.
He also said that he expects inflation to remain stubbornly high and above the 2% target for some two years to come and that any action taken to bring it down now would have adverse impacts elsewhere in the economy as well as risking derailing the recovery.
Any improvement in the UK’s economic future would also rely on more than just monetary policy at home he said. There needs to be reforms that boost the supply capacity of the country and new ways of increasing overseas demand for UK products must be found. “In the end the rate at which we can grow will depend on world demand.” He said. And this he continued would require “…a new equilibrium in which there is a rebalancing of world demand”.
Nida Ali, economic advisor to the Ernst & Young ITEM Club, commenting on the inflation report said:
“The upward revision to inflation was inevitable in light of recent developments like the increase in global food and oil prices and the ongoing weakening of sterling. This was always likely to be accompanied by a slight deterioration in growth prospects.
“But overall the MPC’s view remains broadly unchanged since November. Committee members continue to expect a slow but sustained recovery to take hold in the UK over the coming months, as their various policy initiatives, not least the Funding for Lending Scheme, begin to feed through to the real economy.
“The Governor clearly feels that we are reaching a point where monetary policy is becoming a blunt instrument and that supply side reform is the only thing that will cause an upturn in the UK’s fortunes. Whilst we would agree that supply side reform is important, we still feel there is more that the Bank can do to provide support from the monetary side. With that in mind, Mark Carney’s openness to new ideas is welcome as there is a clear need to debate the structure of UK monetary policy and to consider alternative options such as nominal GDP targeting, adopting numerical thresholds for inflation and unemployment or providing forward guidance.”
Bank of England-FreeFoto.com
KPMG Chief Economist, Andrew Smith, said:
“At least the growth forecasts weren’t downgraded by much. But, that aside, the Bank of England’s Quarterly Inflation Report makes for unhappy reading.
“The Bank’s forecast for CPI is unusually pessimistic – it now expects inflation to stay far higher, for far longer than thought only in November. This combination of continued above-target inflation and lacklustre growth only worsens the policy dilemma for the MPC. For now, further QE seems to be off the agenda, yet if growth were to disappoint – as it has many times in the recent past – then further stimulus may be back on the cards sooner rather than later.”
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Tags: Bank Of England, economics, inflation, mervyn king
A good article but not until economists understand that there is a real world out there and stimuli is just that and no more, shall we in this country start to realise that we have to totally re-engineer our economic thinking and policy mindsets. In this respect the UK will never find a growth model of any meaningful result with present mindsets, as our political elite and their advisers do not understand the basic economics of the evolving new world order. Indeed they look for something that is not there within their understanding, as their thinking is totally absorbed with the past and where this will not work in the future. Instead of looking long-term for something that would eventually be really meaningful they look to the bog standard quick fixers that now are as extinct as the dinosaur. Before they were around but no more as the new world order shows its increasing face. Unfortunately our politicians and their advisers are blind to all this and where they simply rely upon hope. Unfortunately again, hope is no longer an option for UK plc. Once our political masters and their tame advisers realise that they are passed their selling date, we might see a change that builds a solid and robust economy, but not before. The problem also is that the present stagnant thinking is that which got us all into this horrible mess in the first place and where in physical terms, nothing has changed with their thinking. Our economic fundamentals are all wrong now and the sooner our leaders realise that this is our greatest problem inhibiting economic growth, the sooner we can start thinking in new terms that will spawn future economic dynamism. Unfortunately still again, this will never really happen as those who are in charge are the ones who are simply not opening up their minds to those who have the solutions. The reason, they are programmed to only accept their own wisdom that will take our nation deeper and deeper into economic oblivion over the next two decades. A sorry state of affairs, but where the elitist system never allows we mere mortals to see what real fools they really are. Indeed they would keep face no matter what and even if the UK went down the proverbial drain. That is what is wrong with our leadership today and all backed up by their vested interests and so-called intelligent and wise men. Nothing could be further away from the truth as history has shown so clearly over the last quarter of a century and especially the last decade. For if these people had the answers, this nation of ours would be outperforming all others. The reason again, we are the most innovative people in the world according to international research (Japan & Germany), but where this greatest strength of ours is totally stifled by our political thinking and dire economic strategy that is constantly thought up by the government’s ill-informed advisers. For the UK’s economic salvation lies totally in the hands of delivery and for this to happen, the politicians have to stand back, think differently for a change and realise that this can only come from a structured creative infrastructure where all our people’s incredible thinking can flourish and solve our economic woes and dilemma. Nothing less will do and where the history of S&T tells us that this is the only way. Unfortunately yet again, politicians and their astute advisers do not know what I am talking about and have not a clue. That is their greatest threat to any future meaningful existence and why I say that things can only go from bad to worse over the years ahead with the same old thinking. The same old thinking that has got to where we are today, a nation in decline and increasing disarray. Oh how I wish that they would open up their minds for once.
Dr David Hill
World Innovation Foundation
I think you make some very good points but the ‘ holy grail’ for economic recovery seems to be beyond our reach. Yes, we need to take a hard look at a replacement model for the UK economy. Perhaps a good starting point would be to start ‘at home’ as with charity, our influence in the world is enhanced when we have an enduring and strong economy so that should take high priority, lets stop the kidology of pretending we are rich enough to cope with other countries economic woes, we can’t, at least not until we are rich enough to do so otherwise our coffers would simply empty at an even more rapid rate and we become as poor as the people we are trying to help ( driven I know, for the need to improve our own security) . What the hell is wrong in ‘taxing the rich’ for goodness sakes, they at least can afford it and the postponing of a replacement yacht is hardly life threatening and would have done little to aid any sort of economic recovery anyway! The rich just like to see how rich they can be after the first couple of million and the super rich can cause all sorts of problems on the stock markets as they ‘play’ their game – when wealth is better spread, stock markets are far more stable, look at China. On the other hand, everyone has their day and maybe the days of the west being the rich and powerful have now started their slide into history. Now lets think… How would be ever rebuild our economy to its former glory? I KNOW! Lets make things again!
Agree entirely !