Inflation in the UK is almost two times higher than the government forecasts
Annual inflation in the UK rose to 3.5% in March. This figure is almost two times higher than the forecasts of the Bank of England. The financial regulator plans to keep inflation at 2% until the end of the year.
Inflation reduces the real incomes of the British and devalues their savings. The fight against this phenomenon is the responsibility of the Bank of England. Office under the leadership of Marvin King will make the appropriate conclusions after the publication of the March figures.
What are the steps the Bank of England in response to a jump in inflation? Sterilization of the money supply and growth rates refinancing come to mind as a major instrument to combat rising prices. The problem is that the British economy today is less than the total needed to increase the refinancing rate.
This step will increase the cost of borrowed funds for business and private borrowers. Businesses will not create new jobs and reduce production without cheap credit. Individuals refuse to buy real estate because of too high cost mortgages.
Is there an alternative to tighten monetary policy as a tool to fight inflation? Stimulation of production and labor productivity growth is a measure of the taco. A growing economy will provide an increase in real incomes. The Brits will earn more, so inflation will not be a critical influence on their welfare. The increase in the refinancing rate of economic growth will look natural.
Tight monetary policy in an economic downturn could lead to the fact that the UK economy will face stagflation. High inflation, combined with the decline or absence of GDP growth will destroy the productive sector and drastically reduce the welfare of ordinary people. That is how the events developed in Greece in recent years.
Perhaps the leadership of the Bank of England, far-sighted enough to stimulate economic growth rather than fighting inflation?