The MPC and inflation


¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬† Today the Monetary Policy Committee of the Bank should seek to answer why and how inflation has taken such a hold over the last year. It’s not just a case a few rogue items, or the result of the hike in VAT. Food, alcohol and tobacco, transport and education within the CPI are all likely to be going up by more than 5% a year. Within those categories there will be much sharper rises in items like fruit, oils and fats, car running costs, fuel, fares and drinks. Even clothing is now increasing rapidly, thanks to cotton and other raw material increases.

¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬† It’s not as if it was difficult to forsee. This site has been warning about likely inflation for longer than a year. If the Bank allows inflation to stay too high for too long it will squeeze our spending power too much. It also transfers more money from savers to borrowers.

¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†The Bank needs to remember that it is RPI inflation which has a bigger influence on contracts, wages and index linked payments throughout our system. The RPI has consistently been running more than 1% faster than the CPI which the Bank targets. People now expect more inflation than the Bank forecast. They have become sceptical of the Bank’s grip on this important matter. Part of this arises from the different methods of calculation, but many think the RPI is closer to their own experience of price rises.

¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬† The way out of a crisis brought on by the past government’s policy of encouraging all areas of our economy to live life beyond our means is to encourage saving and reward it, and to encourage paying down debt. Instead the Bank’s policy has rewarded the heavy borrowers with low interest rates, rewarded the banks who overlent with low interest rates on the money they need, and penalised the savers and depositors with those same banks. The savers, more numerous than the borrowers have not only taken a hit through low savings rates, but have also faced a series of tax increases as well.

¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬† I¬†argued for ¬†lower interest rates in 2008 to stave off the banking crisis we were put through. Then¬† they were urgently needed to avoid immediate disaster.¬†The Bank delayed them for too long with ¬†predictably bad results. Once ¬†the banks were stabilised higher rates were needed to restore some balance between savers and borrowers. The structure of interest rates which has emerged is anyway very different from the Bank’s wishes. They have set 0.5%¬† as their short term rate for the government and the banks, but the private sector faces rates of 5-8% to borrow on mortgage or small business loan.

              There are those on the MPC who point out that wages are not going up very quickly overall, and in some cases not at all. They keep telling us there is no inflation out there. They point out that money growth remains weak. The problem with this view is that it ignores the fact that prices are going up too quickly and have been for some time. They seem to think the UK lives in its own vacuum. There is a very nasty inflation around the world. It is obvious in the uncomfortable surge in food prices, the big rises in most commodity prices, the dearer fuel, food and transport which we can all see. Low interest rates weakened the pound which increased its impact on UK consumers. We are experiencing the results of easy money in the US, China and India, as well as the results of our own domestic Central Bank policy.

How the method of calculation makes the RPI often go up faster

The government provides an example of how the method may produce a higher figure from the same items. The sum assumes a two item CPI or RPI to make the illustration easier. If one item in the CPI goes up 25% and one falls by 20% , inflation is zero. The Index multiplies the figures out and takes the square root (for two items). If the same happens in the RPI inflation is 2.5% as you add the two sub indices and average them arithmetically.


  1. Brian Tomkinson
    January 13, 2011

    Given that the MPC has a target figure of 2% for CPI which they have constantly failed to achieve for more than twelve months (their previous record was little better), it seems clear that they are either incompetent or happy to see inflation rise or both. Is this not just part of the solution to the problem of the enormous and still burgeoning public sector debt?

  2. alan jutson
    January 13, 2011

    Your usual commonsense appraisal John.


    What makes you think that the MPC really cares about individual savers or indeed inflation. They have shown no sign of any concern yet.

    Why do we need two measurements of inflation, when probably neither are correct, its all too confusing. Why not spend time to do a proper calculation on the items and services that are common to the vast majority of households in their weekly/monthly/annual spend, and use that.
    Making up figures which relate to one form of calculation RPI and then another different standard CPI (for different spin) just compounds the errors, and leads to a complete nonesense of any announcement

    The fact that we have inflation when wages are not going up at all should be a worry to them, but again no sign.

    The fact that VAT has increased by 2.5% has added to inflation.

    We have more savers than those on debt. Yes everyone says that, so why do the Government not see they punish the majority with the current policy. Probably because they are one of those organisations in the greatest debt.

    Voters have a long memory, so they need to change tack, and fast.

    1. alan jutson
      January 13, 2011

      Same solution, do nothing.

      Anyone would think everything is going along fine.

      I doubt it will last much longer.

  3. Steve Cox
    January 13, 2011

    Inflation is nothing more than the state-sanctioned theft of peoples’ savings. It’s disgraceful that this is being allowed to happen on the watch of a supposedly Conservative Chancellor. Thanks to the internet, many people are now far better informed about what is going on than was ever the case during past bouts of high inflation. At some stage, many intelligent people will simply lose all confidence in fiat currencies and, just like in Weimar Germany, they will desperately seek to swap their devalued and debauched paper money for tangible, saleable assets. That is where Mr. King and his cronies on the MPC are taking us, if not at the behest of Mr. Osborne, then evidently with his clandestine approval. They should be deeply ashamed of themselves.

  4. Pete
    January 13, 2011

    I didn’t know about the CPI and geometric mean. Why is it done that way? I can see that it works for comparisons between years. If inflation is 21% in year 1 and 0% in year 2, the average inflation is arguably 10% not 10.5% (inflation of 10% over two years ends up with prices 21% higher, a bit like compound interest).

    I can’t see a reason to use the geometric mean for combining prices within one year. The (ex-) government’s executive summary [ ] is no help either. It suggests that the geometric mean compensates for consumers’ tendency to spend more on goods with falling prices. I don’t get it. Surely the inflation figure is the change in the price of comparable goods?

  5. lifelogic
    January 13, 2011

    As you say the banks are able to charge very high margins so interest rates to borrowers (other than old base linked deals are actually at about the right rate). Higher rates at these high margins would be very damaging. They need to sort of banking competition levels to get the margins down and then rates can then rise.

    Also do not call it inflation which implies an external cause call it deliberate government currency devaluation. In the mean time I suggest people cut of the middle men banks and arrange their affairs for continued valuation of their debts as this is clearly the governments chosen route.

    Also any government which bring in a law that means you cannot retire people (without showing at great cost, stress and tribunal risk) that they cannot do the job ofter years of doing it, is clearly socialist, mad and just wants more pointless jobs for Lawyers and Quangos. Business needs this like a hole in the head on top of all the other things that already render the UK so uncompetitive on the world stage.

    1. lifelogic
      January 13, 2011

      I mean “continued devaluation” of course.

    2. lifelogic
      January 13, 2011

      I also see that the Tory inspired (but labour introduced) non-dom tax has chased out 16,000 wealth people and their money, tax and businesses. I wonder how many countless more are going now with the 50% tax rate and 40% IHT too.

      How many more self inflicted wounds is the government going to inflict on the country?

  6. waramess
    January 13, 2011

    The value of the dollar against commodity prices is falling, presumably as a consequence of its money printing sprees, and that, we are told by the Bank of England, is causing the UK to experience imported inflation however, if the UK currency were to have been managed properly it would be rising both against the dollar and commodity prices and we would not be “importing” inflation.

    But the the circle is squared by the argument that should the pound rise against the dollar exports would be adversley affected.

    A similarly fatuous argument exists that should interest rates rise then thousands would lose their homes and jobs would disappear as companies failed.

    So, we are to believe that in our quest for better export performance we need to sacrifice our economy to imported inflation and in order to keep homes and jobs we need interest rates maintained at or near to zero?

    I suppose this is all to do with being a part of a socialist administration whose hatred of all things right of centre clouds their judgment from looking at good old common sense

  7. michael read
    January 13, 2011

    A bit disingenuous aren’t we:?

    Inflation is part of the grand plan to pay down our debts by ‘soft default’.

    Vital to to this country’s leading industry: houses.

    Jack rates up a notch or two and house prices start heading to a sensible south and 500,000 are locked into negative equity unable to be ambushed by the £50k tuition fees in two years time.

  8. NickW
    January 13, 2011

    We live in a global economy where no currency exists in isolation.

    Isn’t global inflation an inevitable consequence of continuing global competitive devaluation?

    It isn’t going to stop any time in the near future.

    1. Stuart Fairney
      January 13, 2011

      No. It isn’t if a country has an asset-backed rather than fiat currency.

  9. Jonathan
    January 13, 2011

    I appreciate the consequences of letting inflation run out of control and perhaps being young I have no appreciation of the 70’s. However a couple of points.

    – Will raising interest rates actually have any impact on inflation? Most of our inflation seems to be coming from Sterling’s depreciation. Raising interest rates may cause Sterling to strengthen but equally if it further weakens growth – particularly export growth – then Sterling may slump further.
    The other source of inflation is from the global rise in commodity prices. The UK has no control over this. Only the US with their massive QE and China with their rapid growth have a significant effect on commodity prices. We could raise interest rates but it would seem to be cutting off our noise to spite our face as it would only damage business and borrowers and do little to reduce inflation.

    – Second, the blunt truth is that over the past decade money has been too cheaply available and some of those with large savings have benefited from this cheap money, eg. selling their house to heavily indebted new owners, government largesse, etc. The purchasing power of their savings needs to be revalued to its real worth rather than the artificially high value it had during the debt fuelled boom of 2001 – 2008. Savers need to remember how they made their money in the first place and how they benefited from all the borrowing that they now like to decry.

    1. alan jutson
      January 13, 2011


      Yes I well remember how I got my savings, I worked bloody hard all my life, took a few risks in business (with my own money), invested in a pension scheme (Equitable life), refused to borrow money even when it was available at the Banks, but instead grew my business out of profit (now it seems a dirty word) by reinvesting after tax.

      I do not now need my savings reduced in value, just when I am due to retire, by some idiot Politicians who have never run anything in their lives, but think they can with other peoples (taxpayers) money, just to satisfy those who have never worked, or who went on a spending spree and got into debt.

      There are many millions like me, we thought we were doing the right thing at the time, but it seems trying to provide for yourself is now a waste of time, and should be discouraged.

      My big regret, That perhaps I did not leave for pastures anew many years ago.

      Please remember that a house is primarily a home in which you live, if you sell it you need to buy another, until that is you downsize for good and end up in a box or a nursing home. The Government or the nursing home then strip you of your savings (weekly fee nursing home, or capital gains and or inheritance tax)

    2. electro-kevin
      January 14, 2011

      Raising interest rates will prevent people taking on debt in order to maintain their standards of living.

      In other words they would have to get real – which is what I thought austerity budgets were all about.

  10. Iain Gill
    January 13, 2011

    I’d be interested to see a list of folk who bought Index Linked savings certificates in the week before they were withdrawn…

  11. Gary
    January 13, 2011

    This is yet another reason why the market must set the rates and the money supply. This Bank committee cannot do the job (to be charitable), or they willfully want higher inflation and expect it, but say otherwise(see their own pension inflation protection maneuvers).

    Either way , this cannot continue. If we trust the market to set the price of our bread, why do we not trust the market to set the price of our money ?

    For those, unlike yourself, who did not attend De Soto’s LSE lecture, here he places the blame for our present clamity squarely at the door of the central banks, because they mispriced the base rate which then rippled through the yield curve, and that in turn caused investors to mis-allocate investments into what became asset bubbles :

    1. libertarian
      January 13, 2011

      Make your mind up Gary, lots of us have been saying this for ages and yet you said ( over on Carswells blog) that this is all the fault of fractional reserve banking and casino derivatives. Whereas we argued it was central bank/political manipulation

      1. Gary
        January 14, 2011


        What part of fractional reserve banking is NOT dependent on the reserve bank ? The multiples that are lent out by the commercial banks are based on fractioning the notes created (out of thin) air by the Central Bank. The Central Bank is at the apex of the fractional reserve system ! The central bank rigs the base rate to ensure the fractional reserve system has a steepening yield curve to facilitate profitable lending by the commercial banks and to act as lender of last resort when the system inevitably , with a probability of 1, goes belly up. Without the central bank underwriting them, the commercial banks will never lend at the insane multiples that they do.

        Are you just wilfully ignorant or a troll ?

  12. lola
    January 13, 2011

    Money growth may be well be weak, now. But Brown tripled the money supply when in power and the policy of QE added more. The ‘inflation’ we now see is the result of that money inflation.

    1. A.Sedgwick
      January 14, 2011


  13. Javelin
    January 13, 2011

    Until house prices fall then the economy will never recover. Too much of the nations wealth and time is locked up in buying houses. The BofE MPC needs to understand the bigger picture.

    IMPORTANT NOTE : The recent economic crisis was caused by mortgage backed securities being used as AAA capital for banks – as a basis to lend more money. In other words banks and regulators were looking to unlock the capital in mortages as security for more investmentby banks. This is the policy that has failed. Low interest rates mean low savings and this was just a fallous trick to get at the cash that was not being saved in the banks – but in houses – freed up for investment.

    In other words raise interest rates – then more will be saved and banks will not have to resort to relying on mortgage backed securities. We need a balanced interest rate that tempts savers to save at a rate that gives the banks enough cash to invest in properly risk assessed ventures.

    Having said that the next bust we are due is an investment back bust (87 investment bust, 1991 interest rate bust, 2000 investment bust, 2007 interest rate bust) – so what is key for the next 5 years is (A) reasonable interest rates, (B) lower house prices, (C) higher savings and (D) careful investing by banks.

    1. libertarian
      January 14, 2011

      Sorry this is just plain wrong, to unlock the nations wealth from property ( through falling house prices or not) is just not of this world. Do you really think we are all going to sell our houses and move?????

  14. olly garchy
    January 13, 2011

    One assumes that Mervyn King now has a template for those pointless letters of explanation that he writes to the Chancellor, where he just changed the date, and re-sends it.

    1. StevenL
      January 14, 2011

      He’ll have an administrator that writes it for him, so will George Osborne with his reply. The four of them will be on pre-2008 vintage tracker mortgages too I bet

  15. Andrew Gately
    January 13, 2011

    The situation with the Bank of England and interest rates is like a mirror image of the previous problem.

    The previous problem was that rates were too high and after ignoring the problem for a long time they had a knee jerk reaction and rates dropped like a stone – too low in my opinion (bare in mind that I am a borrower and benefited from this).

    Now we have a situation were rates are too low and the Bank are ignoring the problem. It is likely that the next step will be that rates are hiked again in a knee jerk fashion and will probably go higher than they should be. Possibly bankrupting people like me who are over stretched.

    Incidently on the Andrew Marr show David Cameron said that Mervyn King is an excellent central banker and the MPC are doing a good job. It does annoy me that Mervyn King has got so many decisions wrong but people still seem to hold him in such high regard like some kind of sacred cow.

    1. lola
      January 13, 2011

      You might be interested to read this:

      Quelle surprise!

    2. zorro
      January 13, 2011

      The Bank of England is completely aware of what is doing. It is pretending to be incompetent in achieving its aims to keep inflation at 2% (of course not its real intention). After the economic crisis we expect it to be useless….which of course allows it to surreptitiously achieve its real aim of inflating away government debt.


  16. Mark
    January 13, 2011

    The CPI fails to reflect the reality of a household budget. If it consists of two items, initial price ¬£100, and the price of one rises to ¬£125 while the other fall to ¬£80, it says there is no inflation, while you need ¬£205 to buy both items rather than ¬£200 before. Effectively, it assumes you will buy more of the cheaper item and less of the more expensive. However, if the more expensive item is an essential, you may buy less of the cheaper item to make your budget balance: correcting for changed weighting of expenditure, inflation would be higher still than the fairly constant basket RPI . This is the problem faced by people on low incomes: they can’t eat or heat their homes with electronics (or as proposed by adding houses into the CPI) other goods that are dropping in price. In time CPI indexation of pensions will leave the elderly in penury. Willetts was quite wrong to suggest that baby boomers had it all – they haven’t had their pensions at all yet, and will be severely disappointed by the payouts.

    Meantime we have the decision to hold Base Rate and QE constant – to the inflationary forces remain at work on prices. No-one seems to have a plan for sorting out our own banks. They seem too busy worrying about the next PIIGS domino.

  17. Paddy
    January 13, 2011

    This is the unfortunate nature of percentages and the horrible process of averaging variables with a large spread.

    An even more striking example of an absurd percentage comparison is economic growth rates.

    As an example, leaving aside all currency fluctuations, if Britain grows by 2% p.a. and Germany grows by 2% p.a. the absolute size of the German economy in 20 years will be many times larger than that of Britain, simply because the German economy started at a higher level in the first place. Similarly, were the US to grow 2% the fact that it is 6.5 to 7 times or so larger than the UK economy means a strong lead on their part. If Britain wants to maintain global market share it needs to grow faster than these other larger economies. Now that we’ve been overtaken by China the problem is magnified.

    1. StevenL
      January 14, 2011

      We’ve lost a massive amount of ‘market share’ in the last 100 years, we used to be global superpower. Our standard of living is much better now than pre-WW1 however.

      A smaller slice of a bigger pie is nothing to worry about, as long as we can defend ourselves.

    2. Fox in sox
      January 14, 2011

      Even more important is econonmic growth per capita. If germanies population is static and growth is 2% the people are richer, on average. If the population of the UK grows by 2% and GDP grows by 2% we are no richer, just more crowded. This is the reason that while immigration can appear to help growth, this is not true for the man in the clapham omnibus.

  18. Denis Cooper
    January 13, 2011

    The MPC is required to target CPI, which is in fact the EU’s Harmonised Index of Consumer Prices, and so they can only look at RPI to the extent that changes in RPI may indirectly lead to changes in CPI.

    Even if some MPC members believe that it would be better to set interest rates to target RPI or RPI-X, the reality is that since December 2003 they have been subject to a legal order to target CPI.

    In fact in January 2004 Mervyn King did quietly raise some doubts about the wisdom of changing from RPI-X to CPI, in this speech:

    “From May 1997 the target was 2¬Ĺ% for RPIX inflation. But in December the Chancellor gave the Monetary Policy Committee a new target for inflation. It is 2% as measured by the Consumer Prices Index or CPI, formerly known as the Harmonised Index of Consumer Prices.”

    “In this respect, the difference between RPIX and CPI inflation as a measure of the economic temperature of the economy is rather like the difference between Fahrenheit and Centigrade as a measure of physical temperature. In both cases moving from one measure to another changes the number without there having been any change in the temperature itself.”

    “Unfortunately, there is an additional complication. Unlike the translation between Fahrenheit and Centigrade, the difference between RPIX and CPI inflation does vary with the economic temperature. That is because the “formula” effect is not the only difference between the two measures. RPIX includes both house prices and Council Tax. Those items are omitted from the basket of goods and services used to construct the CPI.”

    “Of greater significance than the average difference between the two measures in the long run is the observation that the gap between them varies over time, often quite widely, in line with changes in the temperature of the economy in general and house prices in particular.”

    But whatever doubts King or other MPC members may have about the wisdom of using HICP or CPI as the measure of inflation, that is the measure they have been told to use and legally it is not open to them to use any other measure.

  19. Mike Stallard
    January 13, 2011

    Why the State should keep its hands off banking is that it lumbers along when you need quick, decisive action. Now the decision to put up interest rates is lumbering along way behind the action, as you so rightly say. But that is how the State works. I believe it is called “Due Process” isn’t it? Hey – they need to “cover their back” “just in case”.
    Meanwhile people like me who have savings in the bank (Nationwide) are (once again) having to pay for the feckless who spent out. Thank you Mr Brown for your genius.
    Do you know what? Millions of people like me are beginning to ask this question: why should we have to support the characters on Jeremy Kyle? Is there actually any answer?

    1. Bazman
      January 14, 2011

      I wonder why there is no middle classes on Jeremy Kyle. They get themselves into some excellent and absolutely bizarre scrapes, but without the violence. There I think I answered my own question.

  20. Jer
    January 13, 2011

    Well, yes.

    But given a lack of political will to actually make any real cuts in overspending, how else can we reduce our debt mountain, bar inflation?

    How else to reduce state benefits to reasonable levels other than indexing by a ficticious rate whilst the real rate does the work?

    Sadly, in the absence of courage and leadership, it’s the only weapon the government can use.


    1. StevenL
      January 14, 2011

      It’s the ‘soft landing’ we were promised by Brown.

  21. Acorn
    January 13, 2011

    I don’t think any Redwoodian believes government RPI or CPI numbers. As I understand it, if the price of prime steak doubles, they assume you will substitute hamburgers in the family food basket. If a mobile phone comes out with more gizmos, for the same price as the old model; they assume the price per gizmo has gone down. Certainly that is the way the yanks do CPI. Bring back the “cost of living” metric they had in the fifties; a standard basket of yearly family purchases.

    BTW. If you will allow JR, can I recommend two good links today. I know it is a bit cheeky to use your site to do this, but I think you will like, at least, the first one.
    Having watched your piece on TV today, it seemed to chime with Hussman this week.

  22. Kev Rothery
    January 13, 2011

    John, you always seem to speak perfect sense in these matters. In the economic void from 2001-2010 (1997-2001, all Brown did was continue with previous Conservative spending plans so everything ticked along nicely) you have pointed out the asset price (mainly housing) bubbles, the enormous public and private sector debt being recklessly encouraged by Labour, etc. I was under the impression that once Labour were kicked out your views would come more to the fore in Government thinking. Sadly, up to the present time it appears not. There are whispers but it seems the government is unwilling to grasp the nettle and allow interest rates to increase, not only to bring inflation under control, but also to give some real rate of return to savers and prudent taxpayers who at present are, in effect, bailing out feckless borrowers and reckless lenders. The record low interest rates for the past two years should have been an opportunity to start paying down debts, so when rates rise, the pain should be at worst reduced and at best absent if the debt was paid off. What is the general feeling on the Government benches John? When are the middle class who save, work to put our children through education, pay our taxes etc., going to get a fair break? Political parties of all colours love us at election time but seem to abandon us outside of elections. I’m 35, Married with one child, savings are getting less than half a percent. We are looking to upsize and have another child but I am coming more and more to the conclusion that Britain isn’t the country to raise my family in!!!

  23. BobE
    January 13, 2011

    I see that the great unwashed have been asked to stay out of London during the Oyimpics so as not to upset the upper classes who want to watch.

    1. alan jutson
      January 15, 2011

      The great unwashed can go to Weymounth instead. IF THEY PAY.

  24. zorro
    January 13, 2011

    Most contributors are agreed that the whole of government policy is based on ‘soft default’ and no difficult decisions. Everything is based on cash flat and 5% (and the rest) inflation to achieve ‘cuts’. There is a lot of talk about reform but almost all the the previous government’s social ideas are being kept in place.
    The government seems unable (unwilling?) to lower taxes to encourage growth and investment…..
    All the signs seem to point to further inflation but some of the price rises (fuel) we are seeing as well as the increased taxes (and public sector job losses) may have the effect of curbing spending which may lead to more sales. The shops in Windsor are not very busy at all and are having to discount heavily….all of which my pocket heartily approves.


  25. Bernard Otway
    January 13, 2011

    I am surprised there are no comments about what belonging to the EU does to inflation,in that it puts it up, with all the regulations that have to be followed plus all the other upward costs,in another post in the last few days I cited my own intimate knowledge of how the punitive agricultural duties towards the developing world affect our prices,from friends of mine who farm in South Africa and can,t export here.E G Oranges at 1.05 pence a kilo off the farm,ASDA price this week for 1 kilo £1.50 of Spanish oranges, even if you multiply the South African price by a factor of 2000% to cover shipping costs, that is 21 pence per kilo for transport,a 20 ft container holding 30000 kilos actually costs 6 pence to ship ,therefore
    7.05 pence SA to UK even double that for including a reasonable duty you have a landed cost of 14.10 pence per kilo add any other costs you care but be reasonable and you can see
    the retail price can be much lower,Pineapples Queen size same figures apply for a single one,Bananas similar,Mango similar, grapes similar,does anyone know that on the orange river near Upington South Africa produces 40 million boxes of seedless grapes annually
    they could plant more but are holding back because of a combination of the stupid duty and a strong rand.EUROPE COSTS US BIG TIME.I won,t even tell you what I can buy lychees
    for from the Durban area where I lived you all would go green with envy.These are facts that count as well as all the complicated economic ratios,and YES house prices are too high by at least 25%.

  26. Richard
    January 13, 2011

    I write having seen the news that the MPC have not put up interest rates today.
    I find this a quite astonishing decision, which goes against all the figures and again ignores the main reason why they exist as a committee.
    How can these experts, all sit in a room, remind themselves of the plain and simple rules of their brief then look at the statistics and come up with this illogical response.
    I appreciate that raising rates by half a point, which they could and should have done today, would not have had a huge effect, but it would at least have sent a signal that they are willing to deal with inflation at some point in the near future.

  27. Martin
    January 13, 2011

    Does anybody think the B0fE has a clue?

    The Sterling interest rate is 1/2% lower than the Euro rate – who knows why?

    Raising the Sterling rate even to 1% would give a strong message and reduce imported inflation.

    Incidentally the head of the ECB wants government deficits reduced and labour market rigidities reduced. See

  28. Peter Richmond
    January 13, 2011

    I agree it is time for interest rates to rise. There are many people now relying on savings to cover their increasing expenses and it beggars belief that the only group seemingly considered to exist by the government are those with mortgages. Keeping rates low now is as was stated earlier, just state sponsored theft of assets from those who have worked and saved so as to avoid being dependent on benefits.
    I would also argue that when thinking about banks, the government should now insist that they begin to pay a dividend to shareholders. Since the government now essentially own RBS and Lloyds, they get a large sum back but also the many pensioners and others caught with these shares would also get something – and perhaps the share price would rise too! A win win situation for everyone.

  29. Sally C.
    January 14, 2011

    JR, You should have written this piece today, 14th January. The Office for National Statistics has released the Input and Output price inflation data for December and it does not make comfortable reading for the Bank of England or for any of us living in the UK.

    The output price index for home sales of manufactured products rose 4.2 per cent year on year which is already too high but it is the Input figures that are really worrying.

    The total input price index rose by 12.5 per cent year on year.

    The input price index for the manufacturing industry excluding the food, beverages tobacco and petroleum industries rose 8.7 per cent.

    Between November and December:
    The total input price index rose 3.4 per cent, mainly reflecting price rises in crude
    oil, fuels (including CCL) and home produced food.
    Seasonally adjusted, the input price index for the manufacturing industry excluding
    the food, beverages tobacco and petroleum industries rose 1.5 per cent.
    Price of imported materials as a whole (including crude oil) rose 2.8 per cent MONTH ON MONTH !

    What will it take for the Bank of England to act?

    Reply: Indeed, it rubs it in. This site has been forecasting too rapid inflaiton for more than a year now and askign for pre-emptive action.

  30. Tony T
    January 14, 2011

    The Bank of England is doing what every central bank does- devaluing the currency away to allow the political elites to steal wealth from ordinary people to pay for their pet projects, subsidise pet industries and buy votes. It will end in the same way that the Greek, Roman and Weimar republics ended- badly. Whatever we say will make no difference, it never has.

    1. Conrad Jones (Cheam)
      January 16, 2011

      The Byzantine Empire, was for many centiuries, a lesson in economic stability.

      The cause of this stability was a sound money system, backed by Gold and Silver. A Banker who debased the coinage could face the punishment of having one of his hands cut off. This helped prevent the temptation.

      Had Mervyn King lived during this time, he would have had no use for gloves.

  31. Conrad Jones (Cheam)
    January 16, 2011

    It was good to see you supporting savers views on the BBC (13 Jan 2011).

    It’s a shame that Andrew Sentance is not the Governor of the Bank of England (not that I pretend to support even the existence of a Central Bank). At least Andrew Sentance – as the Governor; would be a step in the right direction, with you as Chancellor. But then, that would be far too sensible.

Comments are closed.