New blood, time for a new focus...

Posted on 20 December 2012 by Drew

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New blood, time for a new focus...

Last week the Governor Designate of the Bank of England, Mark Carney, made the radical suggestion suggested that the bank should be targeted on economic output (GDP) rather than its current focus; inflation. Currently the Bank's main aim is to aim keep inflation around a target of 2%, however Mr Carney has challenged this view; with interest rates as low as they are he believes the target is wrong. His comments were particularly relevant as just days later the US Fed revealed that it was keeping US rates at close to zero until the US unemployment rate falls below 6.5%. Previously they had always set a calendar date.

In fact many economists have argued that as inflation has been above target for 38 out of the last 44months, the Bank of England has been concentrating more on putting the economy back on track and worrying about inflation later in any case.

The Consumer Prices Index (CPI) for November stayed static at 2.7%, with much of the upward pressures coming from increases in the cost of fruit, bread and cereals, as well as hikes in energy bills, all of which are squeezing household budgets. Further increases in supermarket food prices are being predicted following droughts in the US and Russia, and light monsoons in India pushed up worldwide prices for grain and other foodstuffs.

Nothing in the inflation figures is being driven by reckless consumer spending; the items listed are what would be described as essentials, rather than luxuries.

With the very perilous and uncertain state of the economy, to even consider increasing the bank rate now to stem inflation, would be an act of lunacy, which in turn gives greater credence to Mr Carney’s suggestion to change the Bank Of England’s targeting from inflation to GDP sooner rather than later. 

Categories: Mortgages, Interest rates, Government

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