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| Bank of England Interest Rate since 2009 |
It was an emergency measure. As a rule of thumb, interest rates have become a good guide as to how messed up our economy is. Here we are seven years late and still stuck in 'emergency measures.'
And there is little sign of this changing, with Share prices having dipped 10% in the last few months and commodity prices continuing to fall, there is no external inflation to impact the UK. China has devalued too, meaning our imports will cost less for Christmas.
There are some inflationary worries, construction has started to drop off as prices of labour have gone up 20% as a lack of supply of key skills starts to bite; but even here this is cyclical industry that is always hit when growth comes as they are the first to lay off everyone in weaker times.
Meanwhile, the deficit and national debt get harder to reduce, as does private indebtedness, as many debts are not eroded away by inflation over time. Real things, like UK House prices, become more expensive than ever as their real terms increase in price is larger than it ever use to be.
Sustaining growth in a deflationary world will be a very difficult task for the economies of the West; just as they have found in Japan.
When will inflation return? That is an even harder prediction. Wage inflation has been so limited by immigration and automation over recent years. Perhaps an unintended consequence of the Government's decision to increase minimum wages will be to push some inflation into wages over the next 2 years. Equally, commodity markets must be entering the final down phase by now - indices' are all at decade lows or worse. With commodity falls coming out of the picture and domestic demand slowly picking up then inflationary pressures will growl; but it looks like a slow rise from here if most external shock are likely to be deflationary rather than inflationary.
Perhaps rates will still be at 0.5% this time next year? Who would have thought that in 2009.
