The Government and the Bank of England has accepted “We’re in for a rocky ride” but do these people know where we’re going and are they telling us the truth?
The governor of the Bank of England, Mervyn King is indicating interest rates will come down but, in the short term, not by much. His problem is that Inflation stalks our economy and limits the options. The Government chooses to report inflation as measured by the Consumer Price Index (CPI) currently 2.1% just above the target of 2.0%. Mr King warns he will be unable to stop CPI rising towards 3% or more. Most consumers will find it hard to recognise these percentages being representative of inflation as prices are already rising at above 4% and the cost of many utilities, fuel and many other services rocket.
The Government declared the Bank of England Independent with the single goal of ensuring Inflation was maintained at 2%; clearly this is no longer the case. Yet our analyst feels we have only heard part of the story, Mr. King appears to want the pound to fall to reinvigorate the economy, effectively reducing our ability to import and making exports more competitive. Reducing interest rate clearly helps achieve this but just as clearly imports inflation.
What does all this mean for normal people? Simply put, buying almost anything in our ordinary everyday lives is going to cost us a lot more over the next couple of years.
Interestingly the same Mr King, in the same speech claims “Tighter credit conditions mean that, as a nation, we are likely to save more of our income this year than in the recent past.”
Following simple mathematics, prices going up, savings going up, means either the governor is hoping for massive growth (no real chance) or he expects, and needs, the majority of us to consume less.
For many of us consuming less will mean having to get real about what we need, rather than being driven by what we want. Consuming less will be different things for different people but fundamentally it includes either less or later: less travel, less eating, less heating, less waste, less drinking etc. or/and deferring that new outfit, new bathroom, new kitchen or new car etc.