With inflation heading for 3%, the Governor of the Bank of England wants £25bn more quantitative easing. What are we to make of Sir Mervyn King’s views revealed by the publication of the latest Monetary Policy Committee (MPC) minutes?
He may have been influenced by Mark Carney’s indication last week that inflation targeting may be eased when he becomes Governor in July, or he may have run out of ideas to help our flat lining economy. In any event he was overruled by a majority of the members of the MPC.
Having been cheered up midweek by a speech by Sir Howard Bernstein, Chief Executive of Manchester Council at a Downtown event full of ideas about the city’s drive for foreign investment; reading the MPC deliberations was a reminder that we are in a dark forest economically with few chinks of light.
The Budget is less than a month away but there are low expectations that the Chancellor can pull any new rabbits out of the hat. The headwear is empty. Quantitative Easing, low interest rates and infrastructure spend have all been tried but the headwinds blow strongly.
There are indications that the mortgage market is easing and the infrastructure investment has long lead times but the recession continues to take its toll with Axminster carpets following HMV, Jessops and Blockbuster off our high streets. George Osborne was also a billion short on what he expected from the 4G sale.
Last December the Office for Budgetary Responsibility had factored in £3.5bn from the sale. It was an important factor in the Chancellor being able to claim that the deficit was falling. Some economists now claim the government overshoot this financial year will be £10bn.
Internationally there is talk of currency wars breaking out as countries try to boost exports. Japan has certainly embarked on this course. The pound is weak which partly explains the 10p hike in a litre of petrol since Christmas. By the way a friend of mine was asking the other day where are the fuel protests that we saw in 2000? A good question I thought.
Against this background local councils across the North are fixing their budgets for the forthcoming year. In our urban areas most people will face a rise in council tax. The politicians will argue they have no choice considering the cuts in government grant. Cynics will point to the fact that the metropolitan councils from Leeds to Liverpool have no elections this year. The Environment Secretary Eric Pickles is threatening to penalise councils like Manchester who have found a way round the need for a referendum if council tax rises by more than 2%.
Meanwhile the voters of Eastleigh have to choose between the two parties of government as they go to the polls next week. We can judge the seriousness of Labour’s challenge by the refusal of their candidate John O’Farrell to live in the constituency if he was elected.
So it’s between the incumbent Liberal Democrats who have a dull but worthy candidate and an off message Tory. I don’t expect the “Chris Huhne” effect to be too damaging and I’d bet on the Lib Dems getting some good news at last.