Inflation expectations "well anchored", satisfaction with BOE down.

Graham_Devon

The Bank of England said Britons’ outlook for inflation is “reasonably well-anchored,” while acknowledging that its failure to control price growth has undermined consumers’ faith in policy makers.

“Current data suggest that long-term inflation expectations remain reasonably well anchored,” Chief Economist Spencer Dale said in the bank’s Quarterly Bulletin published in London today. “The signals regarding short and medium-term inflation expectations are more mixed, but there are few signs that they have become significantly de-anchored.”
Inflation is outpacing wage growth and probably stayed at the fastest since 2008 last month. While the central bank forecasts price gains may accelerate to 5 percent in the coming months, it held the benchmark interest rate at a record-low 0.5 percent last week to the aid the recovery.

“Despite a modest improvement in the May 2011 survey, the extent of public satisfaction with the way in which the bank has set interest rates to control inflation has declined since the middle of 2010,” the bank said. This is “perhaps in part reflecting a rise in households’ perceptions of inflation over that period.”



Consumer prices probably rose an annual 4.5 percent in May, according to the median forecast of 30 economists surveyed by Bloomberg News. The Office for National Statistics will release the data at 9:30 a.m. tomorrow. A separate report on May 15 may show annual wage growth was 2.1 percent in the three months through April.

More on this story here: http://www.bloomberg.com/news/2011-06-12/inflation-expectations-stay-well-anchored-boe.html

And one from the daily mail:

Interest rates do not need to rise despite surging inflation, the Bank of England says.

A study by the Bank published today suggests that rates can be safely held at 0.5 per cent in order to prevent growth from stalling.

It shows that while energy and food costs are soaring, there is little evidence that short-term price rises are feeding through to wages or long-term price setting by big companies.

Read more: http://www.dailymail.co.uk/news/article-2002867/Bank-England-No-need-raise-rate-low-wages-slow-inflation.html#ixzz1P8sUf9jY

Seems to me the bank is being pressured to state everything is ok?

chucky

when people can understand this maybe we can then put a stop to people starting their daily threads on BoE base rate increases.

rates can be safely held at 0.5 per cent in order to prevent growth from stalling.

ILW

I thought the BoE said inflation would be at around 2% by now. Are they the only ones that thought that?

Masomnia

ILW wrote: »

I thought the BoE said inflation would be at around 2% by now. Are they the only ones that thought that?

As far as I know they said that inflation will fall back when the effect of the VAT increases is out of the equation, so next year.

Graham_Devon

Masomnia wrote: »

As far as I know they said that inflation will fall back when the effect of the VAT increases is out of the equation, so next year.

They actually said it was a blip and will fall back "next year" 3 years ago in 2008. Infact, they assured us that they would ensure it did so.

June 2008

The governor of the Bank of England, Mervyn King, has told MPs he is confident that inflation will fall back to the government's 2% target.
However, he warned that before price growth slowed, the rising cost of food and energy prices were likely to push inflation above 4% this year.
Mr King said an economic slowdown was needed to ensure inflation returned to the goal in the next year or so.
He added that the Bank would "ensure" that inflation slowed to target levels.

http://news.bbc.co.uk/1/hi/business/7474939.stm

Bank of England chief Mervyn King says he is confident of getting inflation back to the Government's 2% target. But an economic slowdown was needed to make it happen in the next year or so, he told MPs.

http://news.sky.com/skynews/Home/Technology/Live-Luggage-New-Motorised-Luggage-Unveiled/Article/200805415015556?chooseNews=Popular_stories

Masomnia

To be fair though he can only work with what he's given, ie. he didn't know in 2008 that for two years running VAT would be put up.

According to the ONS inflation is on target if taxes were constant.

Graham_Devon

Masomnia wrote: »

To be fair though he can only work with what he's given, ie. he didn't know in 2008 that for two years running VAT would be put up.

VAT was cut too, lets not forget.

Maybe the problem is making such bold statements. No one can predict the future, but the BOE, up until recently, have been making somewhat bold statements. Recently they have become much more vague about things. But stating they will ensure inflation is returned to the goal next year, and then doing nothing at all to even try to do so, is a little silly, surely?

It's a very bold statement to make. And people are, or were, getting a little tired of these statements. Hence why I guess, their own popularity surveys declined.

IveSeenTheLight

Graham_Devon wrote: »

VAT was cut too, lets not forget.

For clarity.

The rate was 17.5%
It was reduced to 15%
Then increased to 17.5% again
It now sits at 20%.

The short version of the story is that VAT is higher than pre-recession

The effect on inflation of the latest VAT increase will be eroded on the anniversary of the increase

Batchy

Graham_Devon wrote: »

They actually said it was a blip and will fall back "next year" 3 years ago in 2008. Infact, they assured us that they would ensure it did so.

June 2008
http://news.bbc.co.uk/1/hi/business/7474939.stm

http://news.sky.com/skynews/Home/Technology/Live-Luggage-New-Motorised-Luggage-Unveiled/Article/200805415015556?chooseNews=Popular_stories

around 3 years ago inflation was negative... i dont understand why they would say that???

[Deleted User]

Masomnia wrote: »

To be fair though he can only work with what he's given, ie. he didn't know in 2008 that for two years running VAT would be put up.

According to the ONS inflation is on target if taxes were constant.

osborne should have foreseen outside pressures on inflation before he increased VAT,the other changes were up and down,not UP
after all he will eventually be chancellor when hes finished his training !

B_Blank

Raising VAT was done because it was easiest politically. It was a terrible decision economically. They should of introduced a property tax to tax unearned wealth.

Anyway, I want interest rates to go up, but even I concede that at the moment the BoE should not be raising rates. Any decent uptick in economic performance or further surge in inflation will mean rates have to rise though.