UK economy is interestingly poised

UK economy is really nicely poised at this moment. The economic activity remains in slump but inflation keeps missing BoE’s targets. On top of this you have bank bonuses which keep going on and on.

Despite so many letters to Chancellor and explanations for the same, inflation keeps rising. Some are talking of a stagflation scenario in UK.

Till Dec-10, you had two dissenters. Adam Posen who voted to increase the asset purchase by GBP 50 bn to GBP 250 bn. Andrew Sentance said to raise rates by 25 bps and maintain purchase program at GBP 200 bn.

In the Jan-2011 meeting you had three dissenters – Posen, Sentance and Martin Weale. Weale went along with Sentance to raise the rates by 25 bps and maintain purchase program at GBP 200 bn.

Posen said inflation will fall lower than target as there is huge slack. Weale and Sentance said inflation expectations rising and a 25 bps hike will not matter much for growth prospects.

The division in BoE MPC widens. King has a more complicated tasks ahead of not just answering chancellor but also his team members.

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One Response to “UK economy is interestingly poised”

  1. Should central banks be focusing on headline inflation going forward? « Mostly Economics Says:

    […] stuff. UK is going through this problem of having a higher inflation on account of depreciated currency and rise in commodity […]

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