In These New Times

A new paradigm for a post-imperial world

Mervyn King maps out road to lower inflation

Posted by seumasach on October 26, 2011

This is quite amusing: Mervyn King’s claim of declining inflation is obviously based on anticipated deflationary pressures i.e. collapsing consumption. This fails to take into account the effect of QE on the value of the pound. It is likely to fall substantially especially once the rescue package for the Euro has gone through with the help of China. Our prosperity over the last 20 or 30 years has been dependent on the high value of the pound and its acceptability as a means of payment to cover permanent trade deficit, as well as the desirability of UK gilts. QE, or the bailout of the banks by any other name, must undermine these fragile foundations of our well-being. It will provoke an inflationary surge whilst doing nothing to enhance growth since none of it is being directed into rebuilding our productive base. The higher interest rates when they come will devastate the middle-class overnight.

Mortgage and Remortgage

25th October, 2011

The governor of the Bank of England has explained in detail his forecast that inflation to fall back to target levels over the next two years.

Mervyn King appeared before the Treasury Select Committee this morning to answer questions about the Bank’s quantitative easing (QE) programme to help stimulate the economy.

MPs are concerned that the Bank of England’s (BoE) decision to pump an additional £75bn of fresh electronic money into the economy will drive inflation up further from its current level, 5.2%, and King was asked to provide more details on his recent predictions that it will begin falling back to its 2% target level next year.

He said: “The first thing that will happen as we go into the New Year is the effect of the increase in VAT last January will disappear from the 12-month window used to calculate inflation.

“We’ll see that some of the large energy price increase and fuel prices drop out. Commodity prices have started to fall back.

“That will carry on until the end of the year, then the increase in gas and electricity tariffs that came in the last couple of months will drop out.”

He added these would not be replaced by any “equally large increases in prices”.

Asked why the Bank had chosen not to increase interest rates to bring inflation back to target levels, King said it was in anticipation of these factors.

He added: “The key point for us if we had done that and inflation were a little lower, come next year you’d be giving us a hard time for inflation being well below the target.”

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