London: The Bank of England’s governor Mervyn King yesterday presented the Bank’s Monetary Policy Committee’s latest quarterly inflation report. The report confirms a considerable slowdown in retail spending and the property market. It also makes a strong projection for inflation in the coming months. Consequently, there were fears that the economy could be heading towards stagflation - a situation similar to the 1970s which was marked by rapidly rising consumer prices and high interest rates which completely halted economic growth.
In an attempt to allay public anxiety, Mr. King said the not-so-positive projections were “more likely to be overstated." He said that although Great Britain’s economy is consumer-driven, the current slowdown in consumer spending is more an erratic movement than a trend. When asked what he thought about the marked drop in the sales of consumer durables, he admitted that it was indeed unexpected and he couldn’t understand it entirely.
A number of data sources confirm to a slowdown in consumer spending. These included business surveys, sales reports and profit warnings from retailers. Regardless, Mr King said the MPC expected household spending to start growing again. It would recover, but “it would still remain below the average of recent years.” according to the MPC.
While some analysts had suggested and expected a hike in the interest rate, which would have altered the situation, the city’s money markets had confidently presumed that interest rates would stay unchanged. Traders who had earlier predicted an increase in interest rate, started debating whether the next move would be down.
A senior economist said that if the movement in the economy and all its factors remain consistent, it would only be logical to expect a cut in interest rate in August.
Mr King explained the slowdown in consumer spending as more the result of a slower growth in disposable incomes and house prices stabilising. He stressed that the drop in retail sales during Christmas was an altogether different matter and had nothing to do with the current trend.
Posted
on : Mon, 16 May 2005 14:35 GMT | Loans News
By : Mike Lawson
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