Tuesday, 14 February 2012
UK Inflation - A stopped clock is right twice a day
During that time inflation in the UK has on average been 200 basis points above where the bank has consistently targeted. Even its celebrated fan charts have only just about had a wide enough arc to keep track of where inflation really has been.
Of course, there is much back-slapping today amongst the deflationistas. Indeed, with inflation falling to a mere 3.6% today (only 50% is over target), it maybe that finally in 2012 the Bank get to hit their target.
On the deflationistas side is that they have poured £350 billion of Quantitative Easing into the public sector to sustain the economy and inflation above zero over the past 2 years.
However, the abject failure of the Bank to do its job for 4 years should not go unremarked. Moreover, the fall in inflation may prove temporary if there is a recovery in commodity and oil prices which have fallen sharply - with a war with Iran on the cards and Baltic index rising rapidly it suggest the soft patch for commodity prices may not last long.
Worse for them is the pain inflicted on the real economy. Zero rates and QE have created a zombie economy with house prices held up, the stock market held up and saving and investment decimated. Even bank lending is down in part because the returns are too low to make it worth doing - instead corporates have stored up vast cash to avoid the financial markets altogether.
It's not an economy to be proud of nor a record to be proud of and yet no one has seriously pointed a finger at the Bank of England - our Central Bank has let us down badly the past decade and yet not a single head has rolled or major change been made.
Posted by CityUnslicker