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The truths they don't want you to read....

Wednesday, November 19, 2008

It's the economy, stupid

Interest ratesSo the decision to cut interest rates from 4.5% t0 3% was a unanimous one by the Bank of England.

The startling piece of information was that the Committee considered larger cuts, but discounted that option as it might shock the markets too much.

Frankly, I don't think the market can be shocked by anything at the moment, as the FTSE is here there and everywhere on a daily basis.

All this suggests that further - significant - cuts are imminent and that the full extent of the economic problem has not been made public (although I think we can all guess). But the Bank are only going to (try to) solve the problem slowly.

Not only is that unsatisfactory, but the driver seems to be keeping inflation within the proscribed parameters, rather than jobs, economic growth or a million and one other factors.

Indeed, interest rates will not come down as quickly and as far as they should because the Bank is concerned that inflation might fall below the lower level set by Government. We know that there is a recession coming and that it is going to be deep, but with the Government sticking to its policy to keep inflation inside a narrow range we risk have recession and rising prices; a combination which will only deepen and lengthen the impact.

The lower inflation limit needs to be removed, and removed soon (next week's pre-Budget statement?) to reduce the damage to the economy.


Anonymous said...

What about those of us who have been prudent enough to save all our lives and now depend on good rates of interest to supplement our pensions? We are paying for all those who bought into the 'buy now, pay later' ethos.

Anonymous said...

The graph outline looks like the gable end of a lego house.

AIF said...

We live in a democracy where the rule of majority is key. Unfortunately as it appears the majority of our compatriots have been rather reckless with their borrowing over the past few years, those of us in the minority who were sensible will have to watch as our savings shrink in real terms, our currency tanks and our national debt grows ever larger.

Anonymous said...

anon 1:15 - you must be building them wrong!