An Economics update from John Birchall
As we emerge from recession, which official figures say we are, then may be inflation will rise? The Bank of England has put in £200 billion via its Quantitative Easing scheme and interest rates seem set to stay relatively flat until at least the summer – though Ray Boulger, a senior mortgage notes that ‘the money markets are already factoring in a rise to some extent which affects fixed-rate mortgage pricing already’.
Now Mervyn King is suggesting that the inflation rate will rise above the agreed upper limit of 3% as the extra money supply, fiscal stimulus and consumer spending revival boosts consumption and puts pressure on prices to rise. It’s notable that no one is as yet suggesting that spare capacity may absorb some of these pressures and that stocks may be about to re-built.
What is interesting is just how long it will take prices to fall back within the Monetary Policy Committee’s limits and whether the GDP figures will be significantly revised upwards when they are adjusted in late April – possibly during an election campaign.
It’s going to be an interesting few months – both politically and in the world of economics!
One topic none of the politicians seem willing to talk about is just how they will address the 6% hole in our national income and where the real brunt of the expenditure cuts will fall.
Perhaps some students and colleagues might like to post some ideas on both and then as time passes we can see who was closest in reading their crystal ball correctly!