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Mervyn swerving?

Posted by: katalysis

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This time last year we reported that the Governor of the Bank of England had said in a speech to the Northern Ireland Chamber of Commerce that interest rates:-
“Will not be set now to insulate the banking system from the re-pricing of risk.”
Of course, that was then and this is “now”. Now it’s fashionable to quote Keynes’ line “when the facts change I change my mind”. The problem is that only a couple of months ago the Bank of England was refusing to cut rates because it was worried about inflation remaining above target for a prolonged period. Now it’s saying that the cumulative cut of a full 2% since then is because of concerns that inflation will fall from the current 5% to way below the 2 % target. Not so much a swerve as a complete about turn. If the Bank does not explain itself very carefully then people will begin to lose confidence in both its independence and judgment. If that happens then the latest attempt to kick start the economy could back fire just as we are beginning to see signs of more activity in the local housing market.
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