Attention Armchair Economists

HAMISH_MCTAVISH

Graham_Devon wrote: »

Not much point in my doing it again is there.

I dont criticise them for not raising rates, per se.

I criticise them for saying the same thing month after month, year after year, and getting it wrong nearly 100% of the time. As I said, even I, about a year ago, stated inflation was heading towards 6% and would top out around there. Yet all the OE can do is keep changing their forcast higher, and stating it will fall to 2% in the next 12 months. 36 months later, were still waiting.

Even their forecast chart, the one with the spread of around +4 to -4% is looking wrong.

SO what would you do now Graham, and why.....

Thrugelmir

Graham_Devon wrote: »

I criticise them for saying the same thing month after month, year after year, and getting it wrong nearly 100% of the time.

Have you ever sailed? The objective is to get from point A to point B. However the wind constantly changes direction. So the course has to be reset. Same with the economy or running any business for that matter. There's no right or wrong the majority of the time. All you can do is make an objective decision with the information to hand at the time.

PasturesNew

18 months is how long it USED to take to work through the system, when more people had fixed deals. Less people have them now, there was a stat on this late last week that I can't recall.

More on variable = quicker.

Radiantsoul

PasturesNew wrote: »

18 months is how long it USED to take to work through the system, when more people had fixed deals. Less people have them now, there was a stat on this late last week that I can't recall.

More on variable = quicker.

Interest rates have an impact by more than just mortgages and their related impact on consumer spending.

vivatifosi

Thrugelmir wrote: »

External factors outside of the UK's direct control will have far more impact on inflation than a tweaking of base rates. With the level of global financial instability there's a decade of change ahead.

Thrug's view is pretty much how I see it too. The external factors are massive. There are global economic issues such as the unravelling of the Euro; political issues such as the instability in the Middle East and eco-system issues such as a La Nina harvest impacting on food and commodity prices; with all of these interacting with each other in terms of the impact on our economy.

The two main concerns I have at the moment are these. First there is not an obvious area where growth can come from. When I've looked at past downturns there has been an industry that has come up and helped drive growth. After the war there was a Keynsian reconstruction boom, in the 1980s there was widespread banking deregulation as well as a smaller deregulation of the professional services, then in the 1990s there was the tech boom. There is no obvious industry waiting in the wings to kickstart economic growth.

The second concern I have regards resource scarcity driving commodity prices. Markets don't like instability and there is plenty of instability to come in terms of fuel and food prices. They are important because demand for both is inelastic. The countries that will come of worse as a result of this instability are those in the Developing or Under-developed world and there is a real risk that people there will die.

I know Generali isn't keen on the concept (sorry Gen), but I believe that there is a chance that we move into a new Kondratieff wave, based on resource scarcity and that industrial ingenuiety and growth will be focused on new ways of powering our cars, homes etc. This needs to be set against a context where civil war may destabilise the Middle East and the possibility of a growing anti-nuclear lobby post the Japan disaster. Whether or not this will happen of course depends a lot on how current events play out and over the next year we may near the tipping point on this. Corporations will want a piece of this action because the first mover advantages of any such technology are huge. Any company managing to develop and get to market a new technology based on solving these energy needs could attract a market cap that puts current leaders to shame.

So all of this is a long way from Hamish's original questions because the government can only do so much to respond to such a raft of external factors, as Thrug has already stated. House prices may be a traditional store of wealth in this country, but I don't see their driving the economy to the same extent for a long period of time because the turbulence ahead will be with us for too long to give any certainty. And I'm someone who is generally quite upbeat on things:o.

dave4545454

HAMISH_MCTAVISH wrote: »

5. What will the unemployment rate be in 18 months?

unemployment will be up from current rate of 8 million to around 9 million.

roughly the same for the amount of part time workers, i expect that figure to rise to around the 9 or 10 million mark

tomterm8

I think it's impossible to answer your questions. Which is a proxy for saying, in fact, I don't really believe that inflation targeting using monetary policy is a good approach. It's like forecasting the weather, except that our forecasts don't affect the weather. If I could accurately predict the oil price two days ahead, I could make so much money... I can't. Neither can anyone else. If someone could answer your questions, they would be richer than Bill Gates.

HAMISH_MCTAVISH

tomterm8 wrote: »

I think it's impossible to answer your questions. .

I know full well it's impossible to answer my questions. Or at least, it's impossible to predict the unpredictable. Like VAT rises a year before they're announced, or revolutions in the middle east.

Which is why I asked them.... .

We have an awful lot of critics of bank policy on here.

The goal of the questions is not to accurately predict what course of action will deliver precisely 2% inflation 2 years hence. But rather to demonstrate why such a prediction is impossible to achieve.

I don't really believe that inflation targeting using monetary policy is a good approach.

I agree.

Graham_Devon

HAMISH_MCTAVISH wrote: »

The goal of the questions is not to accurately predict what course of action will deliver precisely 2% inflation 2 years hence. But rather to demonstrate why such a prediction is impossible to achieve.

Maybe they should stop predicting so precisely, then?

Generali

Graham_Devon wrote: »

Maybe they should stop predicting so precisely, then?

The MPC doesn't. They use a fan chart, a chart showing a range of probabilities according to their models where inflation will be in future.

The problem for the MPC at the moment is that we're in uncharted waters. How does inflation react to monetary policy when you have an extra 2,000,000,000 consumers enter the labour and commodities markets in a pretty serious way while your banking system and Government is basically insolvent?

IMO the MPC has done extraordinarily well in incredibly difficult circumstances.