June 18 (Telegraph) -- Britain will not see interest rates
start to rise until 2013, despite suffering the “most pronounced
inflation problem” of any advanced economy, according to leading
economists.
The pace of price rises should soon hit its highest level in
two decades, at 6pc on the retail prices index (RPI), said the
team at BNP Paribas.
However, the problems facing the recovery mean the Bank of
England will achieve little by raising rates from their record
0.5pc low in a bid to rein in the pace of price rises, they
argued.
“We do not believe the Bank of England will raise rates this
year or next,” said Paul Mortimer-Lee, global head of market
economics at BNP Paribas. “There is no point in hiking rates to
slow the economy — it’s too slow already and fiscal consolidation
will stop it from overheating.
“The only reason for a rate hike is to keep inflation
expectations and wage rises down. [But] unemployment is already
subduing wages.”
Mr Mortimer-Lee holds that one-off shocks — rises in the
global cost of oil and food, a fall in the pound and the recent
rise in VAT — explain away much of the UK’s inflation problem.
That should mean CPI inflation will fall quickly next year as
these factors ebb away, ending 2012 around the 2pc target.
In the meantime, increasing the cost of borrowing through a
rate rise would do little to tackle inflation, since prices are
being driven up by global thirst for oil and other commodities,
rather than robust domestic demand.
Others counter that a rate rise is needed to stop
expectations of ever-rising prices become entrenched, and so
becoming self-fulfilling.
Inflation as measured on this RPI measure is currently
running at 5.2pc. Many see it as a better reflection of the price
of living than the consumer prices index (CPI) gauge used to set
the Bank’s official 2pc target, as RPI includes more housing
costs. CPI inflation is now at 4.5pc.
The predictions came as economists at Royal Bank of Scotland
said economic growth looked on track to come in at just 0.6pc for
the second quarter of this year.
Growth was 0.5pc in the first quarter of 2011, but this
merely reversed the 0.5pc fall seen as the snow hit in the final
three months of 2010 — signalling that the economy had flatlined
for six months.
A weak growth figure for April to June would reinforce
expectations the Bank will hold rates for a while yet.
start to rise until 2013, despite suffering the “most pronounced
inflation problem” of any advanced economy, according to leading
economists.
The pace of price rises should soon hit its highest level in
two decades, at 6pc on the retail prices index (RPI), said the
team at BNP Paribas.
However, the problems facing the recovery mean the Bank of
England will achieve little by raising rates from their record
0.5pc low in a bid to rein in the pace of price rises, they
argued.
“We do not believe the Bank of England will raise rates this
year or next,” said Paul Mortimer-Lee, global head of market
economics at BNP Paribas. “There is no point in hiking rates to
slow the economy — it’s too slow already and fiscal consolidation
will stop it from overheating.
“The only reason for a rate hike is to keep inflation
expectations and wage rises down. [But] unemployment is already
subduing wages.”
Mr Mortimer-Lee holds that one-off shocks — rises in the
global cost of oil and food, a fall in the pound and the recent
rise in VAT — explain away much of the UK’s inflation problem.
That should mean CPI inflation will fall quickly next year as
these factors ebb away, ending 2012 around the 2pc target.
In the meantime, increasing the cost of borrowing through a
rate rise would do little to tackle inflation, since prices are
being driven up by global thirst for oil and other commodities,
rather than robust domestic demand.
Others counter that a rate rise is needed to stop
expectations of ever-rising prices become entrenched, and so
becoming self-fulfilling.
Inflation as measured on this RPI measure is currently
running at 5.2pc. Many see it as a better reflection of the price
of living than the consumer prices index (CPI) gauge used to set
the Bank’s official 2pc target, as RPI includes more housing
costs. CPI inflation is now at 4.5pc.
The predictions came as economists at Royal Bank of Scotland
said economic growth looked on track to come in at just 0.6pc for
the second quarter of this year.
Growth was 0.5pc in the first quarter of 2011, but this
merely reversed the 0.5pc fall seen as the snow hit in the final
three months of 2010 — signalling that the economy had flatlined
for six months.
A weak growth figure for April to June would reinforce
expectations the Bank will hold rates for a while yet.
No comments:
Post a Comment