Once inflation rises interest rates will rise rapidly as well

Element47

"To keep inflation down to only 10%... the economy has to tolerate interest rates of perhaps 8%. The risk is that households will not... reduce their debts by enough, and so the economy will not be able to tolerate this... Rates may have to be kept lower for an aditional 9 months and the consequence will be inflation peaking at 20%."

Andrew Lilico Policy exchange

michaels

This Andrew Lilico bloke is way behind the curve, respected commentator 'Cleaver' was predicting rates of 47% earlier this week.

Element47

It is a good point he is making.

If they do have to keep interest rates lower for another 9 months or so, then the consiquence will be big inflation.

Generali

Element47 wrote: »

It is a good point he is making.

If they do have to keep interest rates lower for another 9 months or so, then the consiquence will be big inflation.

The money supply is rising at 3%pa, unemployment is 2,500,000 so wage pressures are unlikely and as GDP fell by 6%+ it seems likely that there is plenty of spare capacity in the country. What will drive inflation higher do you think?

If inflation hits 10% BTW the UK would be looking at interest rates of 12% at the very least to keep it steady.

IveSeenTheLight

For clarity, inflation seems to be falling
http://www.bbc.co.uk/news/10612209

UK inflation fell to 3.1% in July from 3.2% in June, its third monthly fall.

Retail Prices Index (RPI) inflation also fell to 4.8% in July, from June's figure of 5%

JonnyBravo

IveSeenTheLight wrote: »

For clarity, inflation seems to be falling

For clarity, it depends on your timescale. I'd reckon the trend of the last 10 years is up.

Exocet

Yes, it would be invaluable to see a trend line on that graph.

IveSeenTheLight

JonnyBravo wrote: »

For clarity, it depends on your timescale. I'd reckon the trend of the last 10 years is up.

Yes, but if you focus on 2008 - 2009 it's well down :rolleyes: :cheekysmiley:

Milarky

"There is a risk that expectations will become de-anchored, and it is that risk that underpins the upside risks to inflation," [Spencer Dale, BOE Chief Economist] said, noting inflation has been above target for 41 out of 50 months since 2006, and averaged over 3 percent for 2 years.

Even the BOE admit it hasn't worked....

Radiantsoul

Exocet wrote: »

Yes, it would be invaluable to see a trend line on that graph.

I think that is a bit strong. It might be merely useful.

Heyman_2

Element47 wrote: »

Andrew Lilico Policy exchange

This guy must be a happy bunny, what with his headline-grabbing in the gutter press over the past couple of days. Such gems as -

'Interest rates set to rocket to 8.0% as days of boom and bust return!'

'Interest rates at 8%? This is a nightmare that can come true!'

'8% Interest rates could return to Tory highs!'‎

off the back of his fortune-telling - must be a slow news day!