I hear an argument which goes, roughly, as follows: Yes, there is an inflationary push but it is almost entirely due to foreign commodity prices over which we have no control and a rise in our interest rates would make no difference to them. Thus, for the moment a rise in interest rates should be filed away under the heading of 'Self Flagellation'!Any thoughts on that?
DDRespectfully - the usual response to an increase in "official" interest rates is an appreciation in the exchange value of the currency concerned. Accordingly, were the BoE to increase the MLR the likelihood - not the certainty - is that the £ would appreciate: this in turn would mean that commodities - particularly oil - would drop in price (or not increase so dramatically) in terms of the £. Sadly, I see that you have been misled by the siren calls of no change "for the moment": ie no change in interest rates, no change in public expenditure, no change in taxation etc - all leading to perdition. It'll end in tears - it always does.
There is also another dimension to consider. Trade unions are weaker and unemployment is generally higher so it will be difficult for for workers to demand higher wages to compensate for higher prices. This will mean that inflation will eventually taper off but at the end of the process real wages will be lower. All part of the plan I suspect and all driven ultimately by the desire to help bankers. My guess is that the higher commodity prices are the indirect result of Quantitative Easing policies being followed in the US and UK, particularly the former. What I don't understand is how these policies are supposed to help the economies of these two countries as opposed to helping their bankers. March 16, 2011 1:55 AM
Oh dear, I failed to make myself clear. Personally, I tend to the view that rates should go up but, of course, I do so on the basis of very little expertise. The arguments put forward to the effect that a UK rate increase will have next to no effect on foreign commodities is, I think, valid and, with due rrespect to 'Bongers', any exhange rate alteration in sterling would at best be marginal on domestic inflation.To be fair to our masters (something I am not very good at) the world at the moment is in a very ticklish condition. Apart from the body blow just taken by the world's third largest economy, the situation in Saudi and the Gulf is the stuff of nightmares. And the 'melt down' I really worry about is the one looming 'over there' if Obama and his spendaholics keep getting their way.
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