King on the economy

The Guardian offers a good summary of the main issues arising from Mervyn King’s recent Inflation Report. There is a great little animation in the middle of this article to show how each month the Bank’s projected growth figures have always proven to be a little too optimistic and how they have deteriorated over the past couple of years.

King referred to a “choppy recovery” with confidence softening in the UK. Whilst on the “glass-half-full” side, the growth forecasts were at least not downgraded to negative, aka a “double-dip recession”...  But on the “glass-half-empty” side, the Bank of England forecasts were downgraded to 3%, but even this seems optimistic given the newly created Office of Budget Responsibility forecast is close to 2.3% growth for 2011, the latter believing that the risks to the downside are stronger and more likely to occur.

After 10 years of controlling inflation within its target range, they have since overshot their inflation target for 42 out of the past 51 months. And it seems that it is going to continue for more than a little while longer. Currently at 3.2%, it is expected to stay above the target ot 2% for longer than previously forecast, not being helped by the rise in VAT to come into force in Jan 2011 (a one off event which will affect the annual CPI figures for the duration of 2011, although the monthly effect will disappear sooner). The rise in VAT will also undoubtedly have an effect on increasing consumer spending in Dec 2010 and then closing down the hatched in 2011 (which may serve to suppress C and AD enough to bring some respite in inflationary pressures but not providing great enthusiasm for the growth figures).

I still question at what point the BoE will finally adopt a dual mandate like the U.S Federal Reserve’s commitment to price stability and full employment, whilst BoE continues to try to focus on inflation, but making interest rate decisions on growth numbers.

The UK is not alone in this pessimistic view on the recovery - The Fed themselves announced yesterday that they may initiate a more aggressive debt buyback program to inject more liquidity into the markets, confirming fears that the recovery is as fragile as ever. The Fed had initially hoped to reduce the amount of money it is putting into the US economy, but the slowdown has led to a decision to maintain its $2.3 trillion balance sheet, with the chairman Ben Bernanke admitting a U-turn on the bank’s optimistic outlook earlier in the year.

Video report on the UK economy here from the BBC

Unit 2 Macro: Cyclical and Structural Economic Issues Facing the UK [23 May 2012]
Unit 2 Macro: Evaluation on Supply-Side Policies [21 May 2012]
Unit 3 Micro: Game Theory and Business Economics [21 May 2012]
Unit 2 Macro: UK Trade in Services [20 May 2012]
Unit 2 Macro: Migration and the UK Economy [20 May 2012]
Unit 2 Macro: Positive and Negative Multiplier Effects [20 May 2012]
Unit 2 Macro: The Importance of Productivity [20 May 2012]
Unit 2 Macro: Measuring Unemployment in the UK [20 May 2012]
Unit 2 Macro: Measuring Inflation in the UK [20 May 2012]
Unit 2 Macro: Real Interest Rates [20 May 2012]
Q&A: What do we need to know about output gaps? [20 May 2012]
Unit 2 Macro: The Output Gap [20 May 2012]
Revision notes on unemployment [20 May 2012]
Unit 2 Macro: Bank Cuts UK growth Forecast for 2012 [16 May 2012]
Grexit - Andrew Balls on Greece and the Euro [16 May 2012]
Unit 1 Micro: Economics of a Minimum Wage [12 May 2012]
Unit 1 Micro: Poverty and Inequality and Market Failure [12 May 2012]
Unit 1 Micro: Asymmetric Information [12 May 2012]
Unit 1 Micro: De-Merit Goods [12 May 2012]
Unit 2 Macro: Revision Notes on Supply-side Policies [10 May 2012]
Unit 2 Macro: Model answer for revision data question [9 May 2012]
Unit 3 Micro: The Dawn of a Shareholder Spring? [8 May 2012]
Unit 2 Macro: Monetary Policy and Inflation Glossary [5 May 2012]
Unit 2 Macro: Trade and Balance of Payments Glossary [5 May 2012]
Unit 2 Macro: Unemployment Glossary [5 May 2012]
Unit 2 Macro: Fiscal Policy Glossary [5 May 2012]
Unit 2 Macro: Economic Cycle Glossary [5 May 2012]
Unit 2 Macro: Aggregate Demand Glossary [5 May 2012]
Macro Revision - Key Statistics on the UK Economy [4 May 2012]
Robert Schiller - Finance and the Good Society [1 May 2012]
Unit 1 Micro: Using the Cost-Benefit Principle [30 Apr 2012]
Macro Revision: Putting Things in Context [29 Apr 2012]
Unit 2 Macro: Britain back in Recession [29 Apr 2012]
Unit 4 Macro: The Euro Zone Crisis (Revision) [22 Apr 2012]
Unit 1 Micro: Adecco and Monopsony Power [22 Apr 2012]
Unit 2 Macro: Better news on jobs in the UK? [19 Apr 2012]
Unit 2 Macro: Skills Shortages Hold Back Recovery [12 Apr 2012]
Superb article on unemployment [8 Apr 2012]
Unit 2 Macro: Inflation and the Business Environment [6 Apr 2012]
Unit 2 Macro: How the Economic Cycle affects Businesses [6 Apr 2012]
Unit 2 Macro: Revision on Interest Rates and the Exchange Rate [3 Apr 2012]
Unit 1 Micro: The Collapsing Price of Carbon [3 Apr 2012]
Unit 4 Macro: Floating and Managed Floating Exchange Rates [2 Apr 2012]
Unit 2 Macro: Revision on Real Economic Data [2 Apr 2012]
Unit 2 Macro: Revision on Real Disposable Income [2 Apr 2012]
Unit 4 Macro: Pain in Spain as Fiscal Austerity Bites [1 Apr 2012]
Posen on slower growth in the UK compared to the USA [30 Mar 2012]
Unit 2 Macro: Revision on Capital Investment [30 Mar 2012]
Intergenerational Equity - Fairness and the Slump [28 Mar 2012]
Blanchflower calls for more action to address youth jobless crisis [28 Mar 2012]
Life in the Slow Lane - UK Growth in 2011 Lags the Euro Area [28 Mar 2012]
George Buckley at the Millfield Economics Society [28 Mar 2012]
Beyond the Bike - Monetary Policy in Africa [28 Mar 2012]
Unit 4 Macro: Evaluating 3 Years of Quantitative Easing [27 Mar 2012]
Unit 1 Micro: The Tax on Beer [16 Mar 2012]
Unit 1 Micro: Inequality - The Rise of Fuel Poverty [15 Mar 2012]
Unit 2 Macro: Seasonal and Structural Unemployment [15 Mar 2012]
Unit 1 Micro: Government launches New Buy Loan Guarantee Scheme [12 Mar 2012]
Unit 4 Macro: Video Resources on the Euro Crisis [10 Mar 2012]
Unit 2 Macro: Policies to Drive Economic Recovery [9 Mar 2012]
Unit 1 Micro - Labour Migration and the Economy [5 Mar 2012]
Unit 2 Macro: Might Oil Prices Bring another Recession? [4 Mar 2012]
Economies hooked on central bank stimulants? [4 Mar 2012]
Mortgage interest rates, LIBOR and game theory [3 Mar 2012]
The Economics of Climate Change - Stern 5 Years On [21 Feb 2012]
A return to Glass-Steagall to prevent another crash? A lesson from economic history. [17 Feb 2012]
Unit 4 Macro: King on the UK Economy [15 Feb 2012]
Economics Explained, by Evan [12 Feb 2012]
Unit 2 Macro: China’s Trade Engine is Spluttering [10 Feb 2012]
Martin Wolf on Global Shocks [10 Feb 2012]
Stephanie Flanders explains Quantitative Easing in 60 seconds [9 Feb 2012]
Trucks are the new way of measuring debt [1 Feb 2012]
Unit 2 Macro: Growth and Development - Some Indicators [30 Jan 2012]
Unit 2 Macro: Signs of Progress for Zimbabwe [29 Jan 2012]
Unit 2 Macro: Focus on China - Inflation [26 Jan 2012]
Unit 2 Macro: Focus on China - Changing Economic Structure [26 Jan 2012]
Unit 1 Micro: Can the UK Computer Games Industry Grow [24 Jan 2012]
Unit 4 Macro: Money, Debt and the New World Order [22 Jan 2012]
France and Flexible Employment [22 Jan 2012]
Unit 2 Macro: Living below the Breadline [19 Jan 2012]
Unit1 Micro: Processed Meat and Cancer Risk - Information Failure? [17 Jan 2012]
Inflation - what’s up, what’s down and what’s going to happen next [17 Jan 2012]
Unit 4 Macro: France loses her AAA credit rating [15 Jan 2012]
Unit 2 Macro: Frontier Markets - the New BRICS? [15 Jan 2012]
Beyond the Bike - The Importance of Remittances [15 Jan 2012]
Unit 4 Macro: Economics of Fiscal Deficit Reduction [12 Jan 2012]
Unit 4 Macro: UK Bond Yields Reach Record Lows [11 Jan 2012]
Unit 2 Macro: Factors Driving Business Investment [10 Jan 2012]
Hopes and Fears 2012 [10 Jan 2012]
Unit 2 Macro: Quantitative Easing in the UK [8 Jan 2012]
Unit 2 Macro: A Jobs Boost for the US Economy [8 Jan 2012]
Unit 4 Macro: Natural Disasters and their Economic Impact [7 Jan 2012]
Unit 2 Macro: Revision Quiz on Economics of Unemployment [5 Jan 2012]
Unit 4 Macro: Video Resources on Unemployment [3 Jan 2012]
Unit 4 Macro: Exchange Rate Economics - Where next for the US Dollar? [31 Dec 2011]
2011 in Review - The US Economy [27 Dec 2011]
Unit 2 Macro: The UK Housing Market in 2011 [26 Dec 2011]
Unit 2 Macro: Brazil Overtakes UK in Economic Size [26 Dec 2011]
The Eurozone Crisis Explained (again!) [22 Dec 2011]
Economics of Deforestation [20 Dec 2011]

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