Blog 2023 Malcolm Blair-Robinson

Bank of England Forecast

We have learned from the financial crisis and the consequent recession that whilst most economists agree on the obvious elements of the cause, not everyone is agreed on the root cause. When it comes to how to orchestrate a recovery, there is a sharp division between Keynesians and Monetarists.

Central to the argument is forecasts. In my view they play far too big a role. In the end it is what happens which counts. Like bets, forecasts are fun but they are not fundamental. We are near a dangerous point of trimming policy to forecasts, when the opposite must be the rule. Policy must be based on the need to rebuild the economy on sound principles which will offer real prospects of long term prosperity, not another bubble.

To repeat the mantra of this blog, in case you are new to the site and do not have time to browse previous posts, this can only be done by nurturing the strong in enterprise, industry, retail, commerce and domestic life and allowing the weak and the flawed to fade. This creates opportunity for innovation and enterprise to fill gaps and consolidate markets. It reduces gearing and increases net investment. It requires efficient use of assets, selling off to raise more capital for example, more saving and re-investment of profits and less borrowing.

It requires banks to be cautious about lending initially but to back winners who show they can run cost effective businesses which create real new wealth, not inflate assets thus devaluing money. Services need to enable the economy not drain it. Households need to be net savers and spend money earned rather than borrowed. Growth must be founded in industry and business, not the High Street. Retailing must be the beneficiary of growth not the cause of it.

House prices must return to their relationship with earnings of twenty five years agoof  x3. People will then be able to live on what they earn and save, borrowing only for real growth in their circumstances to enhance future wealth, not to pay for groceries or petrol because the cash runs out before payday. When the tills ring out in the High Streets, Malls and Retail Parks more of the takings have to go to British manufacturers creating British jobs.

In the context of all this, the recent good news is the return of falling house prices, cautious bank lending, net saving of households and net deposits in banks and above all a significant narrowing of the trade gap, all  announced, but either ignored or remarked on for the wrong reasons.

What the Bank of England forecasts is academic. What it does, is not. What it will have to do soon is raise interest rates. Inflation cannot be allowed to bolt.

This entry was posted on Wednesday, August 11th, 2010 at 12:05 pm and is filed under Malcolm Blair Robinson. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.