Inflation: Is No Action Right?

The Bank of England Governor remains confident that inflation will fall. If he is right, well and good. Most economists agree with him, as do his colleagues on the MPC.  Generally this group has been more concerned with growth than inflation, hence the reluctance to raise interest rates last year.

This Blog is inclined towards those who believe inflation and slow growth are linked and that rock bottom interest rates may hinder, not help. At the moment savers, in other words the huge contingent of retired consumers, are receiving so little income on their capital that they have curtailed their considerable spending power. That inhibits growth. As inflation is running well ahead of wage increases, the spending power of those working is also reduced. The huge rise in the cost of petrol, gas and oil is having a major braking effect on growth. Add to that, the euro crisis and weakness in the American economy and you wonder if we will not have to get used to the idea of getting our financial house in order without much growth over the next few years.

The coalition government is not doing as well as it did at the beginning. Its deficit reduction programme is right, and the government is right to stick to it. But its policies on growth either are not there or not impacting where they should. As has already been said, the concentration on the critical issue of economic reform has been unbalanced by whimsical ideological tinkering, Libya, mishandling of phone hacking and a hesitant response to Fox, leading to a much more extended drama than need have been the case. This creates the impression on a hard pressed population that there is no hope in sight and of a government not focused on things that matter.

The facts that people see are headline inflation and unemployment at record levels for recent times, growth stalled and the utility companies in the energy sector imposing punitive price increases in a rigged market which they control. Over the latter issue a much trumpeted energy summit led by the Prime Minister achieved nothing which could be understood, seen, measured or felt. Just as the de-regulated universal banks are now seen as the epicentre of the financial calamity which overtook the West, so the privatised utility companies with their reckless price hikes are impeding any attempt at recovery in the UK.

Some of these issues are capable of improvement, if not solution, by government. The Coalition must not just show that it is listening. It must now demonstrate with more conviction that also it knows what to do.

One Response to “Inflation: Is No Action Right?”

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