How long can the BoE keep rates from rising?

shortchanged_2

But as I stated earlier Graham, this is what I always saw as the major flaw of the single currency in that it almost assumes that each countries economies within the single currency are the same when they are most certainly not. The result being that the interest rate rise may well be beneficial to some countries but then will likely be detrimental to some countries.
I for one would not like the idea of a central bank being responsible for the the interest rates of this country, which is why as it stands I would not back the Euro for the UK.

Graham_Devon

RenovationMan wrote: »

Oh dear graham. You have to revert to nasty comments. I'll remind you of this when you do one of your 'don't shoot the messenger' style posts.

I don't think my comments were particularly nasty?

You started by suggesting I was doing my usual stuff etc etc etc. Am I not allowed to respond to your shortness in the same vein? I suggested you were wearing blinkers and gave you an extract of an article from the first ECB rate rise, showing evidence of my claim.

Radiantsoul

shortchanged wrote: »

But as I stated earlier Graham, this is what I always saw as the major flaw of the single currency in that it almost assumes that each countries economies within the single currency are the same when they are most certainly not. The result being that the interest rate rise may well be beneficial to some countries but then will likely be detrimental to some countries.
I for one would not like the idea of a central bank being responsible for the the interest rates of this country, which is why as it stands I would not back the Euro for the UK.

We have a similiar situation in the UK. There is a big difference between the economy of Sunderland and London and a single currency(sterling) prevents the economy of Sunderland from being able to devalue its currency(lower its costs and raise the cost of imports). This is partially offset by fiscal policy which transfer money from London to Sunderland.

FTBFun

Graham_Devon wrote: »

Not really what I asked you to explain.

As shortchanged said, Germany and France are having inflation issues due to their healthy economies as well as commodity changes. A lot of the other EU nations have just the latter but because of monetary union their interest rates are going up even though it might not be the best position for them.

The UK is in the latter camp but has the flexibility to determine their own interest rate level.

Graham_Devon

FTBFun wrote: »

As shortchanged said, Germany and France are having inflation issues due to their healthy economies as well as commodity changes. A lot of the other EU nations have just the latter but because of monetary union their interest rates are going up even though it might not be the best position for them.

The UK is in the latter camp but has the flexibility to determine their own interest rate level.

So, in summary. Interest rates CAN be used to fight inflation.

Yet we on this forum simply suggest they cannot. That was what I was asking you to explain.....your assertion that nothing can be done about any type of inflation. There are of course variables within that....but the blank "interest rates cannot fight inflation" plastered all over the place is disingenuous.

shortchanged_2

Radiantsoul wrote: »

We have a similiar situation in the UK. There is a big difference between the economy of Sunderland and London and a single currency(sterling) prevents the economy of Sunderland from being able to devalue its currency(lower its costs and raise the cost of imports). This is partially offset by fiscal policy which transfer money from London to Sunderland.

That is a very good point Radiantsoul and one that I certainly have an issue with this and previous governments.
I'm sure it wasn't that long ago that areas such as the North East were mooting about the idea of a devolved government as they felt they weren't getting a fair crack of the whip.

HAMISH_MCTAVISH

Graham_Devon wrote: »

So, in summary. Interest rates CAN be used to fight inflation.

Of course they can.

But only some types of inflation. (without the collateral damage being a bigger problem than the inflation)

Yet we on this forum simply suggest they cannot. That was what I was asking you to explain.....your assertion that nothing can be done about any type of inflation. There are of course variables within that....but the blank "interest rates cannot fight inflation" plastered all over the place is disingenuous.

Nobody has ever said that Graham, so I'm not sure why you'd bother trying to say they have.

Now that's "disengenious".

Really2

OK GD, Germany and France now with better economies do not want a wage spiral developing etc. (Harder to turn down pay rises with a strongish economy if inflation is higher)
So the being the major forces in terms of economies they have the biggest sway on european rates.
Every rate increase is bad news for every economy in the euro struggling as they need a weaker currency to kick start growth etc.

So as we control our own currency,have fairly week growth and wages are not pushing up inflation (in fact the opposite ) we can carry on trying to stimulate growth and causing real term wage cuts which will have eventually a lowering effect on inflation (less money chasing too many goods).
Increasing the base rate would have a tiny effect on inflation as the inflation is not caused by a weak currency, why? because the £ is trading higher than last year.

To make any great effect on food and oil cost increases would require a far stronger economy to support to support the base rate required.

We can't just say "right lets push the base rate to X%" and not expect it to have consequences.
The markets would look at it and think, they cant support a base rate that high without damaging their economy. It could quiet possibly have the revers effect as people deserted the £ due to poor economic policy and negative economic outlook.

DervProf

RenovationMan wrote: »

Oh dear graham. You have to revert to nasty comments. I'll remind you of this when you do one of your 'don't shoot the messenger' style posts.

Oh dear Renoman. You have to revert to inaccuracy, again.

I looked for these "nasty comments" from Graham in this thread, and I see none.

Anyway, I haven't seen you around here much over the past week or two. I wonder why you are here today ?

HAMISH_MCTAVISH

A blast from the past......

No doubt it will become an issue with the North/South divide at some point this time around as well. And of course, it's already the case in Europe.

The Governor of the Bank of England, Eddie George has provoked outrage with his comment that job losses in the north were an acceptable price to pay for curbing inflation in the south.

Mr George was quick to add that while rising unemployment in the north-east is undesirable, "monetary policy can only target the economy as a whole, not particular regions or sectors, however uncomfortable that reality might be."

Job cuts have been rife in the north of the UK with manufacturers Fujitsu, Siemens, Vickers, SR Gent, Grove Cranes together slashing 3,500 jobs.

But many economists believe that we need a certain level of unemployment to control inflation.

Is it fair that those in the North should suffer for the prosperity of the South? Is it time the Bank of England made a significant cut in interest rates?

Some Labour MPs are calling on Mr George to resign as a result of his comments.

"If he continues to affirm the view that the people of the north of England are ready to be sacrificed to guard his interests, then I believe he should join them and resign," said Labour MP Denis MacShane during a Commons debate.

General Secretary of the Manufacturing, Science and Finance Union, Roger Unions accused the Monetary Policy Committee of being out of touch.

"Eddie George has shown a complete disregard for the effects his policies are having on ordinary people and their families who are thrown on the unemployment scrapheap by his intransigence," he said.

However economists argue that the governor is quite right. They maintain that a rise in unemployment means less pressure for wage increases that can cause inflation to rise.

What do you think?

Is unemployment a price worth paying?

http://news.bbc.co.uk/1/hi/talking_point/198830.stm