Recession vs inflation?

chris1

If the Bank of England were keeping interest rates where they were (or raising them) to keep inflation down, now they have reduced them in attempt to ward off recession, do you think inflation will shoot up?

What usually happens to inflation in a recession?

GeorgeHowell

chris1 wrote: »

If the Bank of England were keeping interest rates where they were (or raising them) to keep inflation down, now they have reduced them in attempt to ward off recession, do you think will inflation will shoot up?

What usually happens to inflation in a recession?

It is possible to have such a thing as 'stagflation' with both stagnation/recession and undesirably high inflation. We may be heading that way now. The 0.5% was actioned in a panic and ends the impression of Bank of England independence from political interference. Brown figures it will be popular and that the majority of savers who will be worse off don't vote for him anyway. I suspect that RPI inflation will remain in the 4-5% for at least another year or so, if interest rates also remain at 4-5%. The Bank is gambling on inflation always coming down in a recession which it normally does. However given the vagaries of oil prices, energy prices, and commodity prices all of which are largely outside the control of the UK anything is possible. If the relativel high inflation starts leading to wage inflation then we are in trouble, but job losses or the threat of them usually prevents that.

Lokolo

Look at inflation for the 1980s

http://www.whatsthecost.com/historic.cpi.aspx

There was a great recession then.

purch

The 1980's were a 'cakewalk' compared to the 1970's

Take a look at the Inflation numbers for 1973 to 78...Recession,......the 3 day week,....... Denis Healey going to the IMF with a "begging bowl" to save UK Ltd (that was before Plc's) from bankruptcy.

Milarky

Isn't the difference between today and the 1980s and 1970s that 'globalization' makes national markets far more inter-dependent and therefore there is global surpression of inflation that was never here in a previous era?

I just don't see inflation taking off in a sustained way in this country - and if it did it would be in defiance of the generally subdued price rises elsewhere. The UK would have to be truly unlucky not to escape from the inflation levels of the past..

cloud_dog

With the amount of paper money being created it can only really add to asset inflation, although I thin the BoE may have taken advantage of the liquidity crisis and slowdown (recession) to lower interest rates in order to stave of a longer recession.

StevieJ

GeorgeHowell wrote: »

It is possible to have such a thing as 'stagflation' with both stagnation/recession and undesirably high inflation. We may be heading that way now. The 0.5% was actioned in a panic and ends the impression of Bank of England independence from political interference. Brown figures it will be popular and that the majority of savers who will be worse off don't vote for him anyway. I suspect that RPI inflation will remain in the 4-5% for at least another year or so, if interest rates also remain at 4-5%. The Bank is gambling on inflation always coming down in a recession which it normally does. However given the vagaries of oil prices, energy prices, and commodity prices all of which are largely outside the control of the UK anything is possible. If the relativel high inflation starts leading to wage inflation then we are in trouble, but job losses or the threat of them usually prevents that.

Where do you get inflation of 4-5% when the the drivers of inflation over the last 12 months e.g. oil and commodities have reduced by 50% since July, and if you think inflation busting pay rises are on the agenda during a recession, you must be living in cloud cuckoo land. Inflation will be 1% or less in 12 months and interest rates will be 3%.

panic_2

what are the chances of the BoE base rate rising in the next year?

StevieJ

panic wrote: »

what are the chances of the BoE base rate rising in the next year?

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purch

Isn't the difference between today and the 1980s and 1970s that 'globalization' makes national markets far more inter-dependent and therefore there is global surpression of inflation that was never here in a previous era?

That's true...

The hard decisions in the 1980's by the likes of Paul Voelker, Helmut Schlessinger et al, appeared to have finally slayed the Inflation Beast....

Hopefully it will never re-awaken, but the Beast is stirring after being repeatedly 'poked' by Greenspan and his chums over the last decade...