The biggest danger facing the British economy is this: at their meeting in May the Monetary Policy Committee of the Bank of England is very likely to raise rates – despite a warning from the governor - because of the ongoing fear of inflation. Raising Bank of England rates at this point of fragility, would be like deliberately and repeatedly pointing a sharp dagger at a bubble of household, corporate and financial debt.
We may expect very little global leadership or co-ordination from the G20 Finance Ministers. They remain captured by contractionary, deflationary economic theory and policies; policies which serve the interests of the rentier – the titleholders of money. Policies which threaten to tip the global economy once more into a “synchronised downturn”.
Jittery stock markets are now skeptical of the Chancellor’s earlier complacency as UK prices continued to fall at the end of 2015. This is worrying for firms, SMEs and households, as both debt and debt servicing costs rise in real terms as general falls in the prices of goods and services occur, and as average real wages remain almost 8% below pre-crisis level.
The fall in prices (actual and in trajectory) must be considered in the context of Britain’s excessive private household debt, as well as recent movements in rates by US monetary authorities.
After two days of trouble and strife in global stock markets, the Federal Reserve’s New York President William Dudley said in remarks to reporters that a September rate hike seemed “less compelling” now than in recent weeks. These two words alone calmed global financial markets, and pushed up the price of oil. So everything’s going to be all right then? That is what some would have you believe. “Relax. Its just a correction” say the analysts. “The stock market always goes up and up and up. Hang on in there.”
The Bank of England’s Andy Haldane is a fine economist. He occupies an ideology-free zone. This is highly unusual in central bank circles. He has just made a particularly skilful, and nuanced speech. Many gushed over it. Gillian Tett of the Financial Times suggested that it was good enough to qualify Haldane as a journalist.
Martin Wolf in the FT today strikes a different direction from those secular stagnaters shepherded by Larry Summers towards the cliff-edge of endless doom. (Larry Summers devised and popularised the term, “secular stagnation”. He has a lot to answer for. His misjudgements, poor advice to the Obama administration, and flawed analysis have been catastrophic for the global economy. Given his record, he should be silenced or ignored, and barred from shepherding anyone, including economists and other naifs, in any direction. For more on his grave weaknesses see this Forbes article.
Two rather unexciting news items were released this May. First, the ECB has kept the bank rate at 0.25 per cent as expected. The ECB board must, like the IMF, be concerned about deflationary tendencies in the Eurozone.
It was a busy week, statistically speaking, with the UK Office for National Statistics (ONS) issuing their latest raft of data on the labour market and unemployment, as well as the latest inflation statistics. It got us tweeting quite a lot, so much in fact that we did not get round to posting it all on our PRIME site.
The latest monthly data show the annual pace of UK inflation accelerating to 4.5% in April, using the Consumer Price Index (CPI). The broader measure of inflation in the Retail Price Index (RPI), which also includes housing costs moderated a little, to 5.2% from 5.3% in March.
By Ann Pettifor & Douglas Coe
The IMF’s World Economic Outlook this week expressed optimism that OECD economies are recovering, and that emerging markets are doing better than ever. However, while UK unemployment numbers fell, Britain’s first full National Accounts for 2010 are a reminder of the severity and fragility of the UK’s present economic position.