It was a kind of grudging rate cut. Yesterday, the Bank of England knocked another 0.25 per cent off the interest rate – but seemed to be spitting feathers as she did it.
Sure, there seems to be a line-up of economists from here to Timbuktu predicting rates will be slashed this year, and yet the Bank has damning words. “Some slowing of demand growth, by reducing the pressure on capacity, is likely to be necessary to return inflation to target in the medium term.”
The Bank further rattled the inflation cage, saying, “Inflation at 2.1 per cent in December was close to the 2 per cent target, but higher energy and food prices are expected to raise inflation, possibly quite sharply, in the coming months.
“The Committee needs to balance the risk that a sharp slowing in activity pulls inflation below target in the medium-term against the risk that elevated inflation expectations keep inflation above target.”
But while the UK’s central bank still seems to be striking a hawkish note, it’s nothing like the ominous presence of hawks circling above Frankfurt.
Yesterday, the European Central Bank kept rates on hold, and its president Jean Claude Trichet said he was “prepared to act preemptively” in the event of second-round inflationary effects.
It’s all a little odd, because the one place where the central bank doesn’t seem to think inflation is a threat is the place where it is highest.
While in the UK the central bankers worry about inflation of 2.1 per cent, and the in the Eurozone inflation of 3.4 per cent has bankers rattled, in the US, prices rose by 4.1 per cent over the last year.
It seems Ben’s helicopter view of the economic terrain is very different from bankers in London and Frankfurt.
Reading the above makes me think, and has sparked off an intresting debate with my colleagues, that, if we went home tonight and told (requested) the wife (house husband, see that i’m trying to be politically correct) not to go to Saindurys or Tesco tomorrow and have a freezer and cupboard week…..basically eating all the stuff you would normally / eventually throw out…what effect would that lack of spend have on the economy and how would that benefit us over the coming year ??