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I don't get it...

 
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hatchelt
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Joined: 24 Nov 2005
Posts: 124
Location: Bristol, UK

PostPosted: Wed Aug 10, 2005 1:37 pm    Post subject: I don't get it... Reply with quote

http://news.bbc.co.uk/1/hi/business/4137868.stm

Economic growth will remain subdued in the short term, the Bank of England said in its quarterly inflation report.
The Bank said the major risk to economic growth was a slowdown in consumer spending. But it said growth would be stronger in two years time.


What's going to happen in two years that that I don't know about then?! Because I'd've thought we'd be well into our peak by then, so where's the spending going to come from?!
But this is the Bank of England...surely they know about what's coming and the effect it would have on our economy?!
So I don't get it; what's happening here? Are they deliberately lying to us?
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beev



Joined: 24 Nov 2005
Posts: 112
Location: Edinburgh, Scotland

PostPosted: Wed Aug 10, 2005 1:56 pm    Post subject: Reply with quote

I dunno. The BoE has been around for aboot 300 years, so I would imagine that by now they've gotten pretty bored of watching trends and stuff. Probably they just make it all up.
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andyh



Joined: 24 Nov 2005
Posts: 323
Location: New Zealand

PostPosted: Wed Aug 10, 2005 2:07 pm    Post subject: Reply with quote

I find some of the recent comments by the BoE astonishing, particularly those relating to inflation. The last interest rate cut was off the back of inflation having risen 25% in 6 months (from 1.6 - 2%), with the clear indication that inflation will now surge above their 2% target (input price inflation suged a whopping 13% this week, and at long last there are signs that businesses are now passing these costs on). You may recall the BoEs major brief is to target inflation (and not, as some would have it house prices or any other measure of consumer spending). A major contributor to this surge is of course the price of oil (and of course of other commodities - part of the reason the latter are going up is becuase the costs associated with extraction ie oil, is forcing them up). The BoE target mid term inflation (up to 2 years out) and yet are somehow coming to the conclusion that the oil price is going to come to their rescue and obediently fall over this period so getting them out of this inflation fix. I would love to know what the average price of oil they are factoring in over the coming 2 years. I can only assume that they are oblivious to peak oil, probably because they listen to economists who believe demand will simply stimulate demand and all will be well.

I note with interest today however that the Irish press is focusing on the oil influenced inflation danger forcing the European bank to hike rates.
This is a much more likely scenario, and leads to stagflation, whereby oil induced inflation necessitates rate rises which in turn causes a recession - the latter is what will bring (temporary) relief in the first of these demand/supply imbalances.
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fishertrop



Joined: 24 Nov 2005
Posts: 859
Location: Sheffield

PostPosted: Wed Aug 10, 2005 2:42 pm    Post subject: Reply with quote

I think the BoE uses various measures of inflation, some which EXCLUDE the cost of fuel, or factor it down.

If you take fuel-inflation out of the overall inflation numbers you might see much smaller numbers, which they might be reading as a warning of a general slowdown - to which the "answer" is lower interest rates = more credit = more spending.

Like all big institutions that might be PO-aware in some way, the BoE is trapped - they cannot even mention any fears about future oil prices else the price will GO UP off the back of it.

Don't forget that modern economics is as much based on managing consumer (spender) confidence as it is raw business numbers - you HAVE TO convince the consumer that everything is basically rosey in the future else they'll stop spedning, and that means disaster in our current (and quite frankly absurd) economic model.

The BoE and US Fed have to say confident nice positive things else they'll trigger the thing they most fear - a crisis of confidence.

One of the grand-daddy's of stock market theory (I forget which one) said that you could not work with stock market trends without understanding monitary policy, business numbers AND crowd psychology.

It is this trap that makes me not that optimistic about a soft landing (to use that nasty phrase).
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