Good news from the Bank of England. In a study they just published, they explain that interest rates will not rise, even though there is surging inflation. They say that the rates can safely be kept at .5%.
Alleviating Consumer Fears
This should help to alleviate consumer fears that price inflation is going to continue going up at more than two times the Treasury’s 2% target. It is common knowledge that the British are worried that they are heading into a period of “stagflation” which would mean that prices will continue rising as the economy stagnates.
The Bank says, however, that this is not the case. In its Quarterly Bulletin, the Bank says that ‘long term inflationary expectations remain anchored by the monetary framework’
Sir Mervyn King
All eyes are on Sir Mervyn King, the Bank’s recently knighted governor. He has repeatedly promised that he will keep rates low so that public spending can be cut without putting a damper on recovery.
The National Institute for Social and Economic Research recently showed figures that indicate a growth in the economy by .4% in February through May.
After today’s report, the Bank said,
‘there are few signs that inflationary expectations have affected price or wage setting behavior.’
The Daily Mail ends its article on the topic by saying,
“The Bank has found little evidence that recent rises in the CPI have any impact on wage settlements. It reports that ‘current wage growth remains around 2 per cent, some way below its pre-recession average rate’.
With wages frozen in the public sector and unemployment stubborn in the private sector, the Bank argues that ‘there are few signs that households are pushing for higher pay’.”