Dear God, did Polly just say this?

Only consumer debt keeps the economy growing. For reasons beyond comprehension, the Bank of England chooses this cliff-edge moment to announce it will raise interest rates, due to rising inflation. The Bank was set a 2% inflation target, devised in days when high employment triggered wage inflation. No such luck: despite record employment, wages are falling behind prices, with too many low-paid jobs. Price rises are due to the Brexit fall in the pound, inflating imports as the trade balance worsens. Raising interest rates now is leech-doctor medicine, upending indebted households and cutting national consumption.

Raising interest rates is the solution to inflation. We’ve got inflation but we must not raise interest rates?

Sigh.

OK, so the inflation is due to the fall in the £. What does raising sterling interest rates do? Raise the value of the £. What does raising interests do then? Reduces inflation.

Sigh.

Note no comments allowed over there…..

7 thoughts on “Dear God, did Polly just say this?”

  1. I think the full and correct translation of what she is saying (and has been saying since the early 14th century) is:

    ‘Oooh it’s so nasty, we must spend more, cut interest rates, raise tax or even better borrow more, grow the state, print money and behead Tories. And all with a deeply caring, gender inclusive socialist heart. And if you don’t believe this you are wicked. Wicked I tell you’.

  2. How long before Snippa picks this up and does another self-aggrandizing “this is the state of the nation as I see it” post?

  3. I’m not normally minded to agree with Polly, but I do think she makes a valid point. The drop in Sterling was (hopefully) a one-off; we’ve had slightly higher-than-usual inflation for the past 12 months, but now we should expect to see it tail off as the Brexit shock works its way out of the annualised figures.

    As a thought experiment, imagine that Saudi Arabia decides to close the border with Qatar. Inflation rises in Qatar as all imports have to come by air or by sea instead. Should the Qatar Central Bank raise interest rates to boost the currency and thus to choke off the inflation? Of course not.

  4. The fact that the unions are now considering more strike action is evidence that the economy is tightening. Hence the likelihood of interest rate rises soon.

  5. Nick,

    Unions live in a bubble outside the rest of the economy. The Civil Service went on strike in 2014; I don’t recall people claiming that the economy was tightening at the time, nor any prospect of rate rises.

  6. The Civil Service went on strike in 2014; I don’t recall people claiming that the economy was tightening at the time, nor any prospect of rate rises.

    That would have depended on the aforementioned people noticing!

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