Britain no longer having a 'nice time'

[PowerSwitchJames]

An unenviable array of "worst since" will greet the nine members of the Bank of England's monetary policy committee as they gather this morning for the start of their two-day meeting to decide the level of interest rates. Plenty has happened since they met in early September: trading conditions in the high street are at their weakest for 22 years, according to the CBI, oil prices are at their highest in real terms for quarter of a century, and house prices are growing at their slowest for nine years. The economy as a whole has not been this sluggish since the immediate aftermath of Black Wednesday 13 years ago. Even the ever-upbeat Gordon Brown has been forced to admit that the UK is no longer on course to meet his ambitious 3%-3.5% growth forecast for this year.
Every one of the analysts polled by Reuters last week expects the MPC to leave rates on hold at 4.5%. The decision is not quite as clear cut as the raw data suggests; even those who are convinced that policy needs to be eased believe that the Bank will delay action until next month.

Two factors are thought likely to stay the MPC's hand. The first is that there is some evidence the Bank has managed to pull off a soft landing for the housing market which, after weakening steadily for the past 15 months, is now showing tentative signs of stabilising. Mortgage approvals have started to pick up, even though house-price inflation is still falling.

The second is that the MPC is anxious not to repeat the policy mistakes of the 1970s, when attempts to shield consumers from the effects of higher oil prices allowed inflation to take root. Dearer energy has already pushed inflation, as measured by the consumer prices index, above its 2% target, but the Bank is not especially concerned by this. Instead, it is on the look out for evidence that consumers are seeking to make good the losses they are suffering to their disposable incomes by securing higher wage awards, or that businesses are managing to pass on higher costs of production to customers. So far this has not happened, but with the futures markets predicting the cost of crude will stay high for some time, the Bank will remain vigilant

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