We should remember that the Bank is in good company with its forecasting errors.
Actually, there is nothing very unusual about what has happened to the economy in recent months.
As one former Treasury mandarin mentioned to me recently, if you look back at previous British recoveries from recession they tend to be much stronger than anticipated – the Bank is now predicting above trend 3.4pc output growth this year – and start when you least expect them.
The delayed upturn may well be attributed to the need to repair the financial system, which is four times the size of gross domestic product, and still adjusting to the events of five years ago. The peculiarity of this recovery is that, as in
So as well as hoarding cash, employers have also been hoarding competitively priced workers even if they are on part time or zero hours contracts. All this means is that Carney is at, or close to, his 7pc jobless guidance almost two years ahead of expectations.
The good thing from the Bank's point of view is that the message it has been putting out about acting gradually before raising interest rates has been absorbed by the markets that expect a quarter point rise in bank rate by the second quarter of 2015 and a 2 per cent rate by the end of 2016.
That kind of rate projection had been absorbed by lenders before the Inflation Report was published, and the pricing, for instance, of fixed rate mortgages has already been adjusted. It was knee jerk foreign exchange dealers who decided the pound needs to rise.
The exact nature of the revised guidance is a bit murky and based around the concept of an output gap – the idea that the
So catch-up requires some evidence that productivity is on the rise, competition for quality employees is pushing up wage rates and under-employment – the part-time and zero hours workers – are more occupied. The big political dilemma will come next spring: will the Bank be independent enough to raise interest rates in the teeth of a general election campaign?
There is a convention in the US that the Federal Reserve, except in extremis, holds off during the final stages of a presidential contest so as to keep its neutrality.
One also suspects that the MPC might not be entirely happy about going first if the US and other advanced nations are still holding rates at super low levels.
To do so may bring unwanted capital inflows that could make sterling less competitive.
The lesson of all of this, whatever the outcome, is that debt-fuelled private-equity-style takeovers of consumer firms are a menace and the banks should avoid them like a plague.
It has found that buying
Similarly, spending on
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