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Raising Rates in the UK? No Way!
With CPI hovering around 4 percent, doubling the target, and RPI
topping 5 percent, inflation is on a tear in the UK. While the general
price level dropped month-on-month, from 4.4% (Feb) to 4.0% (Mar), the
Bank of England (BoE) expects further increases in the CPI numbers in
the following months, as high as 5 percent!
Meanwhile, raging UK inflation in putting pressure on households,
with an ever bigger part of their disposable incomes going to food and
energy bills, with little-to-non discretionary spending left.
In normal circumstances, the monetary authorities would act by
raising interest rates to battle inflation. But, as you may know by now,
we’re not living in normal times. We are witnessing central banks who,
instead of tightening, are loosing up some more.
The BoE members voted for rates to be held, as they believe
that temporary and external factors, such as off the chart commodity
prices, shouldn’t trigger any action as experts are advising. Their
reasoning: UK wages are still in check!
One of these experts is the Ernst & Young Item Club, which is urging officials not to raise interest rates, as The Telegraph reports:
With RPI inflation already at 5.3pc, the rate could
“easily” climb past 6pc if mortgage payments follow the path of interest
rates, said Peter Spencer, Item’s chief economist adviser.
“We are of the view there would be a wage-price spiral because… this
could be just the straw that breaks the camel’s back,” he said. “If RPI
went to 6pc, it would put extraordinary pressure on wage settlers to
concede to demands.”
So far wages have been rising much more slowly than inflation, which
although painful for workers has alleviated worries about the risk of
prices spiralling out of control, since the squeeze on households is
keeping demand weak.
Item called for the Bank of England to hold off from a rate rise
until November, when the group thinks inflation will be about to fall
quite sharply, as the effects of the recent VAT rise and other factors
drops out. Since inflationary pressures would be less, a rate rise then
would lessen the risk of a wage price spiral developing, it is thought.
So there you have it, the happy few are getting a bit happier, while
John Q. Public is getting squeezed a little longer… of course,
everything works untill it stops working. We’ll soon find out in the UK,
won’t we?!
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British subjects....get the heck out of the miserable nation! Why live in a overinflated ugly piece of flat in a depressing weather and high taxes to support banksters and the royals. Food is terrible.
Australia, New Zealand, Canada offers much better opportunities.
All UK has left is its arrogance and Shakespeare.
The UK and USA bet everything of a system that relied more and more on financial services and less and less on manufacturing.
However, the leeches (financial elite), after sucking dry slave nations, have now turned on their own people.
As the oligarchy gets richer and richer, the masses are told to work for less, have less services, enjoy their degrading quality of life, and to survive on rising costs and lower wages.
However, people should not worry about wealth being tranfered to the top, as soon enoough it will begin to 'trickle down'. It should start any day now....
Guy I work with is boring enought to buy the exact same food every week and when inflation came up he said his bill had gone up £20 a week just this year.
But on the upside everyone with a tracker mortgage is paying off that ovepriced three bed semi at record rates. Yay!
It should be clear to anyone with an IQ larger than their shoe size that the UK government in conjunction with the Bank of England has decided to default on the massive debts and liabilities accumulated so far. Add in the fact that it cannot raise interest rates since this would cause house prices to collapse creating even bigger losses for the banks, who having already gone bust once thanks to overleveraged bets on derivatives that went wrong,would then take down sterling and the country with them.
The government and the Bank of England,like Bernanke and the Fed, have painted themselves into a corner from which there is no escape but for hyperinflation or relatively high inflation(10-15%p.a.) over many years.
Anyone holding sterling or gilts needs their collective heads examining, in fact I am amazed sterlings collapse up until now has been relatively slow.Expect more "it's only temporary" noises from Mervyn King and the Bank of England,who last week told markets not to expect a rate rise anytime soon since inflation was falling(reported to the cretins via the UK media as prices are falling -not the rate of increases)it had "fallen" from 4.4% to 4.0% and as such was TWICE the 2.0% the Bank of England should be targetting!!!
So as Mervyn King has been saying every month for the last FOUR YEARS when the inflation figures are higher than the Bank of England target - it's only temporary.
Or as Charlie Munger would say "just suck it up folks"
you nailed it, completely. ++
So is the writer (and all the commenters) arguing that incresing interest rates will serve any good purpose?
Pointless article, the Bank of England of course are right to leave rates where they are, for the reasons they state. Hiking rates would only hurt the average Brit even more.
No, leaving rates where they are continues to distort the price of money, increases the risk of even higher inflation down the road, and prevents true asset price discovery via holders of over-leveraged malinvestments going bankrupt and releasing their assets for more productive uses.
It's pretty good for government workers paying of their variable-rate mortgages though, I agree.
Shit, you are not of this world.
"Wages-push" inflation was totally discredited by the actions of that tool of the Left, Malcolm Fraser.
Increasing interest rates is the only forlorn hope of those who wish economic recovery.
On the other hand, those who seek the utter destruction of the functioning economies of the world seek lower and lower interest rates.
dont you know broken windows are a stimulus to the economy, and Uk will have plenty fo stimulus
I love how the fact that the job situation being the worst in living memory (thus holding down wages) means that asset price inflation is not a worry. Talk about fighting the last war... Wage price inflation isn't the only economic calamity to worry about.
Like a old boss of my used to say:
A or B, the money has to come from somewhere. And as long as A+B=C and not D everything is oké.
the scum of Govt are doing nothing but screw even more money out of the private sector with even higher taxes to prop up their grotesque public sector empires
6 months into recession business cut spending, 1 year in consumers... we're still waiting for the Westminster windbags to make any cuts as apposed to just talk tough (shit)
Westminster, like Washington and Brussels, is a socially and economically dysfunctional vandal in society. A parasitical political cancer feeding on its host. The 3 Parties of socialist scum have the economy they deserve, that they destroyed with their endless theft and robbery of private wealth. The UK is doomed because the progressive politicians are rotten to the bone... ready the pitchforks Gentlemen, the social scum needs 'harvesting'