Unlike Colin Firth in The King’s Speech, there was no verbal stumbling from Mervyn King when the governor of the Bank of England made his keynote speech in Newcastle last night. But the economic recovery seems to be stuttering.
Economics is such fun (despite its ‘dismal’ reputation) because very rarely are any forecasts absolutely right; even from the experts. And right now there are so many pieces of contradictory data that the overall picture is more blurred than ever.
Inflation is heading towards 5 per cent; unemployment is growing; interest rates are at a record low (but could rise by the end of the year) and GDP has just lurched downwards just as Britain stands on the brink of steep public spending cuts. Today the British Bankers Association reported that mortgage approvals for house purchases sank to a 23-month low in December; approvals were 28,726, down by 38 per cent on the same month last year. Yet some data – for example manufacturing figures – are showing a more positive outlook. The big question: Are we heading for stagflation?
Minutes released today from the last MPC meeting show the committee becoming more hawkish. Not only did Martin Weale join Andrew Sentance in voting for a 0.25 per cent rise in interest rates.
The minutes also say: “for most members the balance of risks to medium-term inflation relative to the target had moved upwards over the past month, reflecting the recent and prospective buoyancy of import prices and the possible impact of higher-term inflation on near-term inflation expectations.”
But that gathering was before yesterday’s GDP figures. Confused? Don’t worry – so are many of Britain’s leading policymakers.
Jim Pickard
Kiran Stacey