It was the inflation forecast that wasn’t. The Bank of England still seemed more concerned with deflationary tendencies in the economy. And Mervyn King appeared ultra-cautious about any sort of forecast.
At one point the governor of the Bank of England even implored the assembled economics hacks to help him explain to the country just how great is the uncertainty in the outlook for the economy.
Firstly, the “bad”. The report predicts the worst path for the economy since they started publishing these things. The trough is the economy is something like -4.5 per cent, year-on-year.
The “good”, though, is the view that we are entering some sort of recovery. That is as a result of the unprecedented firepower of government and Bank of England, the fall in the pound, and a view that the unprecedented rapid running down of stocks and inventories must have turned.
The “uncertain” towers above the rosier signs, however. Mr King was at pains to play down the emerging exuberant optimism. He constantly referred to doubts about the sustainability of any recovery, and specifically suggested that a recovery over the next few months “might then fall back”.
The economy has not had a bust like the past year in living memory. The path from broken banking system back to sustained growth is hugely uncertain.
My best assessment of the Bank’s assessment is that they fear a W-shaped* double-dipping relapse in the economy in a few months’ time. Or put another way, that real green shoots need much stronger roots.
*More on economy shapes later.
- Watch Faisal Islam’s analysis on Channel 4 News at Noon.
Commentsoldest first
[...] Author: Faisal Islam|Posted: 5:58 pm on 13/05/09 Category: Faisal Islam on Economics | Tags: Recession As I said earlier, my best assessment of the Bank’s assessment is that they fear a W-shaped double-dipping relapse in… [...]
I do believe that there will be an economic bounce as the money thrown at the problem will create an illusion of swift recovery. However, the recovery has little chance of continuing immediately as there are still strong deflationary pressures in the world. Worse, at the first sign of recovery, the Bank of England will have to raise rates aggressively to curb the inflationary effects of the daft policy of printing money with interest rates at negative real levels. That will cap any recovery and produce another dip.
I don’t envy the Bank in their task. Brown and Co have made managem,ent of the economy near to impossible.
Leave a comment
* Required field.