An Outbreak Of Sense At The BoE

So Mr Mervyn King doesn’t want more stimulus; we can’t afford it. Praise be. We’ve finally got someone in the corridors of power who may not be absolutely wedded to the economic theory of Robert Mugabe.



We’ve been waiting a while, but Mr King has finally cottoned on. You really wouldn’t think it would take what has seemed like an eternity for the Governor of the Bank of England to realise that record government spending accompanied by record levels of debt is not exactly the ideal economic policy in the midst of a recession, but we are where we are. He’s with us now, in the Real World, and he’s very welcome. Whether he can bring those idiots Brown and Darling with him is a completely different matter.

The government is worried about deflation, and that’s why it’s taking the advice of the Zimbabwean School of Economics by printing money. But deflation is not the main danger, and getting the photocopier out is not any kind of answer. Whilst it’s true that sustained deflation would be deeply damaging, the greatest risk we face right now is the one we always face; inflation.

For each of the last three months the economic pundits have been predicting plummeting inflation figures (as opposed to gently failing, or even rising ones). And for each of the last three months they’ve been wrong. This time they were insisting that the CPI would be heading back towards the government’s target figure of 2%, and that the RPI (which includes mortgage costs) would go into the “meltdown” territory of negativity. Wrong again. True, the RPI hit zero, but the CPI – the government’s preferred measure - actually went up.

Recessions come and go but true enemy of long-term economic prosperity is, and always has been, inflation. It makes doing business harder, it makes us uncompetitive and it costs jobs. Most governments contribute to inflation in some way, and this one is abusing the privilege. Quite apart from increasing the money supply, which is always inflationary, the gargantuan levels of debt we’re facing causes huge downward pressure on the pound, making imports more expensive and thereby adding still more to inflation. Hence the CPI’s “surprise” hike yesterday. We’re about to enter a classic inflationary spiral, and God alone knows how long it will last. The seeds now being sown by the madmen at the economy’s helm will bear nothing but a truly rotten harvest of economic disaster for years, possibly decades to come.

Mervyn King at long last seems to be waking up. For the rousing of Mr Brown and Mr Bust to the realms of economic sanity, we may be waiting a while longer.