Bank of England Inflation Report

Today saw the publication of the Bank of England's latest Inflation Report.  It made the headlines for the reduction in its growth forecast to probably around zero for UK GDP this year (probably, because it doesn't give numbers; people have to get the ruler out and measure the Bank's fan charts).

The Inflation Report suggests that inflation will be below target later over the forecast period and the Bank seems content that inflation expectations will remain low.  It highlights a high degree of uncertainty, particularly around the prospects for the Eurozone economies and the impact on the UK economy.  This is not included in its projections - you have to take your own view.  Economic activity was affected by the latest stage of the crisis and the Report notes that companies have been reporting that they have reined in investment plans.  That will not be good for economic growth.

The Report does contain some optimism.  The Bank believes the outlook for consumer spending will brighten a bit for the rest of this year.  This is because households will have more income available to spend on discretionary items (eg fuel bills increases drop out of the year on year figures).  However this depends in part on households feeling as or more confident about the future; if people worry about a deeper recession for example (and we have a government doing very little to combat that threat) then they may save more to pay down debt faster or just save for a rainy day.

It all adds up to the need for a proactive government that actually is doing something to promote growth rather than hope for the best.

Stephen Beer, 08/08/2012

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