Interest rates

sevenhills

Years ago, we were always warned that high wage rises would stoke inflation. There are obviously many factors that impact on inflation, but is the public sector pay freeze, except HNS, is an indicator that we will have low wage increases, low inflation and low-interest rates.

I did think that the Government could use higher inflation and higher interest rates to shrink our massive debt. If that is not the case, we will likely have low-interest rates and austerity for years to come. Is having low-interest rates good for the economy?

El_Torro

I think in the grand scheme of things public sector wage increases won't have a big impact on inflation. I thought Quantative Easing would have a much bigger impact, but we're a decade or more into that now and high inflation hasn't materialised yet, so who knows?

Interest rate have pros and cons. Low interest rates are bad for savers, they're good for borrowers, especially companies that want to borrow to invest. The problem at the moment is that interest rates are so low that they can't go much lower. Negative perhaps, but that brings its own can of worms.

As for a prediction on what inflation will do in the medium to long term, I don't think anyone can give an informed opinion on this.

dunstonh

I did think that the Government could use higher inflation and higher interest rates to shrink our massive debt. If that is not the case, we will likely have low-interest rates and austerity for years to come. Is having low-interest rates good for the economy?

That method was used by both the UK and US in the past when debt levels were at similar levels.  However, it was not an easy thing to manage and that was back when the world economy was so integrated.    Today, with economies so entwined, it could be extremely difficult and require a lot of time.

sevenhills

If the past 10 years has taught us anything, it is that the Bank has consistently done too little to help the economy and not too much. Bailey could ask Sunak to overhaul the MPC remit, increasing the inflation target from the current 2% to 3% or 4%, or bolting on a growth target that would force the Bank to keep rates where they are until growth reaches 3% or 3.5% a year.

That could be Bailey’s legacy, for which the nation would thank him.

https://www.theguardian.com/business/2021/mar/13/debt-levels-not-an-issue-bailey-should-tell-tories-why?CMP=Share_AndroidApp_Other&fbclid=IwAR3P4eWU7jfHTMADW1-kFPHS8XR_fhDei4nU4hMAay4kHGxeCwlJTCdGDqQ

masonic

I think the biggest learning point of the last decade about inflation is that inflation rates follow inflation expectations to a greater extent than anyone expected. The general public have become used to low rates of inflation and their behaviour is driving that trend forward.