Can we please stop focussing on GDP growth as the be all and end all? GDP is a completely blunt measure, and does not take into account dangerous accumulation of debt.

Look up the McKinsey 'debt and deleveraging' study (http://www.mckinsey.com/mgi/reports/freepass_pdfs/debt_and_deleveraging/debt_and_deleveraging_full_report.pdf) at exhibit 1 on p10. Go on, do it.

Compare Britain and Germany from 2000 to the present. During this time Germany's economy was roundly criticised due to low headline GDP growth, whilst Britain's was applauded. Now look at how this was achieved - outstanding UK debt has gone up by 50% whilst Germany's has barely moved. And what do we have to show for this profligacy? High speed rail? Excellent schools? Renewable energy infrastructure? No. The most expensive housing in the world? Yes.

But yes, responsible journalists, carry on focussing on GDP growth. It is clearly the only metric that matters, and which truly represents improvement in living standards.

This link should work: http://www.mckinsey.com/mgi/publications/debt_and_deleveraging/index.asp

Inflation up, borrowing up, growth vestigal at best and the risk of a crisis when interest rates inevitably rise and the long tail of negative equity in commercial property has to be resolved.

We've seen what's happening in Greece, the threat to soveriegn debt and the costs associated with it must be tackled head on, better to excise the cancer now than have secondary growths elsewhere.

Therapy is painful and distressing but better early conservative intervention than more radical later intervention.

To me everything is going up, up, up, up and up!!! My shopping basket/habit must be very different to Mervyn King's (anyway I can't afford the items he uses to measure inflation) but I can honestly say that I havn't noticed prices coming down even when inflation was going down!!

I believe information are being manipulated by vested interest or at least a positive spin put to it, from housing, inflation, unemployment, etc.

Mr King, please get a reality check as everything you say doesn't add up!!!

Danger points in my view.
1) We need true inflation figures to work with, these need to include some reference to property, both residential and commercial.
2) Interest rates are being abused.
3) We must deflate the property bubble or we risk killing future real growth.
4) Balance of trade (See below)

In the three months ended November, the deficit on trade in goods widened by £1.6 billion to £20.7 billion, compared with the deficit of £19.2 billion in the three months ended August.
Total exports rose by £4.1 billion (7.4 per cent) to £59.8 billion
Total imports rose by £5.7 billion (7.6 per cent) to £80.6 billion.
Source ONS

Any improvements in our exports may be wiped out by inflation in our imports.
5) Budget deficit, without real inflation figures, how can we get a real grasp on this.
6) Banking, proper regulation, taxation and some form of Glass Steagall.
7) Sterling, what countermeasures can we use against speculation.

"the tailwinds of an enormous policy stimulus... meeting the headwinds created by the balance sheet adjustment of the damaged banking system."

Love it.

Or in plain English, we've just shovelled shitloads of cash into the system, only for the banks to stuff it straight into their pockets without even blinking.

Hi WageslaveX14, precisely, and not to mention the small cost of re-unification.
Hi Legalcynic is that conservative with a small 'c'.

Good, does this mean interest rates will stay low? They are still far too high. I don't mean BoE base rate, I mean most mortgage rates, SVR, credit cards, loans, overdrafts. If inflation is going to rise, albeit temporarily, there must be no increase whatsoever in benefits or public sector wages. It goes without saying that private sector wages will not increase.

Can someone please create a website with the coding to analyse thousands of super market items, utilities and petrol prices - and calculates a real inflation figure?

Hardly suprising given that we're no longer flogging so may over priced houses to each other while simultaneously pi**ing the mortgage equity withdrawal money up the wall on widescreen tv's and 4 x 4's.

Of course Britain faces a slow recovery. Growth will stay low for a year or two at least whilst households rebuild their savings and companies cut back on spending too. However as it says, there is no real chance of a tightening of monetary policy in case of snuffing out what recovery we have.

I actually think that QE may continue later in the year because of the need to hold down longer term interest rates which have a bearing on individual borrowing costs.

So,

The BoE forecasts growth will reach 3,2%in the second guarter of 2011.

does it?

Any bets anyone?

As I repeatedly write on this site, growth per head will average out at 1% max for the next ten years at least.

Does anyone know if Mr King got back safely? I was a bit worried the other day with the photo showing him dressed up like a stuffed turkey.

Can someone please create a website with the coding to analyse thousands of super market items, utilities and petrol prices - and calculates a real inflation figure?

Isn't that exactly what the ONS does?

As I repeatedly write on this site, growth per head will average out at 1% max for the next ten years at least.

Anyone who claims to be able to forecast any aspect of the economy ten years ahead is a fool.

And it's not as if there's going to be any way to come back to this blog in 2020 and debate whether you were right or wrong, is there?

Good luck to him, the City liked it, who else matters?

Oh and avoid Greece for the moment, the potential of it going bankrupt is causing the natives to get restless.

I understand they are planning on spending that £500 it costs to erase their debt and they can start with a clean slate. Good luck to them.

If you make a public prediction about something, that other people base financial activities on, you should be held liable for that prediction and also made to say how likely your prediction is to be correct. (i.e the strength of punishment would be correlated with % of truthfulness.

"In its latest quarterly Inflation Report, the Bank forecasts that growth will reach about 3.2% in the second quarter of 2011, weaker than the previous prediction of 4%"

So......MK prediction out by 0.8% so far....(say £50 billion??!) so MK should give a large % of his salary to charity when that 1st 1/4 2011 figure comes in at MINUS 2-
.8% or whatever it will actually be (certainly not 3.2% one would assume looking at the debts and crisis we are in!!)

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Demand doesn't drive inflation, the cost to supply does. Falling demand does not mean prices will fall. That is juvenile micro-economics. The truth dumps the free-trade neo-con assertions into the dustbin.

Suppliers have fixed costs that can last for years (e.g. property leases, expensive equipment & IT systems, senior management salaries etc). These must be spread over fewer units of sales.

Suppliers also have other reversing economies of scale (e.g. shipping an entire container of goods from A to B can cost the same as shipping a few items). Again each unit of sale must carry a higher proportion of the cost.

Therefore falling demand results in higher prices in the short to medium term. This either pulls demand forward (if there is credit available & people indulge in an inflation 'busting' spending spree) or chokes off demand by making goods less affordable.

Then firms begin to go bankrupt. This is perceived by remaining firms as reducing competition (not as a warning that their goods are over-priced). Firms actually feel reassured that they will be able to access a bigger market share without reducing their prices.

In short, recession increases prices & causes inflation. The complete opposite of what we are told ought to happen.

This was always going to be an interesting Inflation Report. The Governor had to explain why growth was disappointing and inflation had returned inspite of his asset purchases and his predictions to the contrary.The analysis of this according to notayesmanseconomics in his web blog is that he was hardly likely to point out his own failings. I did like the way he pointed out the error in the Governors use of the phrase "as expected".If an inflation overshoot was expected he should have changed policy. Also if we get more asset purchases will they be more successful than the £200 billion we have already had?

I notice that there is still no exit policy for QE....

I would also support the earlier poster GDP is not the be all and end all.

If £200Bn of QE = 1/10 of 1% of alleged growth what do you think 3.2% might cost us.

What are we talking about here Mr King - ( you who did nothing to prevent the absurd asset bubbles which you must have known would end in tears) - 32 X£200Bn = £6,400Bn. Sound about right?

Tosser - off with his head. He is making it up as he goes along whistling in the dark.

Pound still plummets I'm afraid

No matter how 'arty' the Grauniad's photos of the Bank of England at the top of financial articles get.

Hi Eachran why do you have such a downer on France?

Agree with many posters about all spurious inflation figures being bandied about by King, the ONS or any bugger else who claims to be an economics expert. Over the last 18 months, the bill for the very same food shopping I've been making has gone up by around 25%. Now the CPI is a sham measure anyway, was part of Brown's great fraudulent and baffoonish intervention which ended up screwing the economy, and one of the reasons we got in to the mess we did with housing debt, but 3%? 3.5%? 0.9%? Gobbledygook.

AmberStar, that's not really the whole story though is it. There are plenty of ways in which firms can cut production and costs at the margin and this is where demand has a big impact on prices in the short term. For example at the height of a boom firms will pay existing employees overtime and will be prepared to pay more for raw materials to keep production up. With the disappearance of demand all that disappears and instead of paying expensive overtime and paying over the odds for extra raw materials, they will reduce stocks and cut overtime and temporary staff. Just look at what happened for Christmas 08 when firms laid off workers and went on a discounting frenzy which knocked over 1% of the rate of inflation. The current rise in inflation is merely the reversion to more normal pricing following the blip of lower inflation caused by last year's economy.

"Over the last 18 months, the bill for the very same food shopping I've been making has gone up by around 25%."

Where on earth are you shopping?!? There are few things on CiF that annoy me more than people moaning about inflation figures for the sole reason that they went to Tesco on Sunday and spent a tenner more than they reckon they might possibly have done last year.

GDP... inflation... isn't anyone going to mention the really nasty one, low interest rates?

The only reference above is someone saying they are too high. You try living on interest from savings if you're retired. A pot that might have topped up your income by, say, £5k a year is now bringing in pennies.

It's almost impossible to find a safe investment vehicle that will maintain the value of the savings, never mind generating a return.

Once again the thrifty are being punished hardest.

Is it just me or is the first half of the 21st century going be defined as the great Bail Out? It seems to be everywhere suddenly and the new consensus appears to entail bail outs are available from somewhere or someone if something too big to fail is about to fail. Is this all new or have we been here before? I cannot recall it quite like this before. The BBC World news reader just said, 'email your ideas whether you think a Bail Out is a good idea for Greece'. It's all quite bizarre really. I suppose the state has run our lives for so long that we expect saving but they now save the fat cats for the most part.

Hi HowardD agreed, this affects businesses as well. Past recessions have seen interest rates as one of the tools for check and balance, in the 80's it slowed the property bubble, stopped excess borrowing and meant that growth came from real money not debt. Sadly I suspect that you and I say this from a position of no debt or mortgage, whereas most are just about getting by on 3-4% SVR and a hike to 11-15% as it was then would see massive repossesions/bankruptcies, housing market collapse etc.
Maybe this could have been addressed if the banks had not got to the money first.

2011?
i can pull numbers out of my ass for next yr as well

deano30
10 Feb 2010, 1:37PM

Britain's economy faces slow recovery

I think not.

With the current mindset of contemporary political/economic advisers Britain's economy faces terminal decline. We shall not prosper till we hang a banker or two and say half a dozen politicians, three from each of the leading parties, to encourage the others.

Much to modest an ambition deano30.
I want heads on pikes the length of the M4

Heir Brown and Co have had enough in the past to help the UK economy.
Now we have a massive hole which the taxpayers will have to fill.
And they expect our votes! Time for you to go Mr Brown, your time is up.
You have milked the British public with your stealth taxes over the last years. The taxoayers pot is empty too.
However, you'll be alright as you'll get a nice pension whereas me, I'll struggle to survive and I mean struggle.

HowardD

Consider yourself lucky. This generation will not be as fortunate as yours.

Most people are in debt with no chance of any pension, owning a home or topping up there income from the interest owned on their investment vehicle.
5K returns a year? - some people have to survive on that!

Count your blessings.

@Gumbo

The same Co-op that I've been going to for the last 4 years is where I shop. All comparative studies need constants - mine has had two: place of shop and items comprising shop. So it annoys you that people say to you that they're paying more for the same food shopping and linking it to inflation? What do you think inflation is linked to - the weight of Gordon Brown's teardrops? You do know what food shopping is, don't you?

HowardD is right, we need an increase in interest rates now, to keep the lid on inflation, to protect the currency, and to reverse the reinflation of the asset price bubble. We need to bring property prices down to no more than 2-3 times average annual earnings, in order to give the next generation some hope of getting a foot on the ladder. And we do need some return on savings, at present the prudent are expected to bail out the profligate, which is not a good lesson for the next generation.

I would hate to be a student about to leave university with some weird qualification and a load of debt. Just have to stay with Mum & Dad for the rest of my life.

What really pisses me off is that the people working in the public sector will get a pay rise that matches this inflation figure.
I'm in the private sector and haven't seen a pay rise in 3 years.

Now the CPI is a sham measure anyway, was part of Brown's great fraudulent and baffoonish intervention which ended up screwing the economy, and one of the reasons we got in to the mess we did with housing debt...

CPI is not a sham measure. It was introduced in order that the UK's inflation rate could be more easily compared with those of our neighbours.

Yes, it excludes housing costs, and in a nation where housing costs are such a large proportion of income that does create distortions. But property is an asset, and asset prices have no place in any measure of inflation.

I am just old enough to remember the 70s and 80s. Those fortunate enough to have bought a house with a large mortgage would have been able to pay off the mortgage very quickly because inflation was high and greatly reduced the value of the debt. Returns on endowments, investments and annuities were much higher. Actual interest rates were lower than inflation, unlike now. Inflation of 13% was the norm, with the average mortgage interest rate 10%. So the real interest rate was negative. Unfortunately these times do not look as though they will be repeated, due to the irrational phobia of inflation and negative real interest rates.

Pedronicus,

Why didn't you (or) get a job in the Public Sector if you think they're better off?? I guess working in the "Public Sector" was seen as a job for "mugs" during the greedy years!!

does anybody actually believe these forecasts from B.o.E and politicians?
they appear to be no better than british weather forecasts. it could be the case being put in the best light, or it could be downright lies or it could be incompetance. we will never know. Or could a detailed diary of who said what/ when' be compiled and regularly reviewed to establish how each "forecast"eventually compared with reality.

Something: not quite completely different but different nevertheless. Here in Germany where I live I have always thought that Hartz IV a sort of golden rule for unemployment was unjust. Not surprising as Hartz IV (actually named after a guy called Hartz), a banker; well that figures ? and he was heartless. But yesterday watching the German news I was amazed to see that the Bundesverfassungsgericht (yes only the Germans could come up with a word that long), it?s a sort of German Supreme Court, has ruled that Hartz IV is unjust especially concerning financial support for children. And yes the economic downturn has hit Germany too, but Gerechtigkeit is still important. Something the Tories and sadly the wasted years of Labour could learn from ? the English translation by the way is justice.

I can't read this article. It's the way the bloke on the bus is peering out at me.

The problem with economists, both public and private sector, amateur and professional is that they blind themselves with 'mechanisms'.

Most laypeople with half a brain see things more clearly because they use common-sense principles. In UK, many individuals and the government have both simply borrowed to fuel consumption and now they cant borrow any more. Having brought that consumption forward from the future, it cant be had a second time when it should have been i.e. now. Oh, and of course we have to pay interest on the debt thus depressing income even further. Of course income across the nation must now be lower.

Regrettably the hit is not going to be evenly spread; it will be taken up by the unemployed, the young, in fact most people except the wealthy, for whom life will go on more or less uninterrupted. Sad to think of the poor banker who might only pocket £1million this year instead of the usual £1.5.

The biggest idiot of all was of course Brown, who continued to build his budgets on the expectation of increasing debt! Its really not difficult to see, but here we are again with the usual suspects thinking themselves into the ground to produce their 'expert' opinions.

im sorry , but i will not be fooled into believing we are out of recession . thanks to to the labour party and greedy banker , and a immigration problem , company 's are going bust , people are losing there jobs and even there homes , and the latest joke is the government want people to pay 20 grand if they die to help oaps . why don't these mps and bankers pay this , they were the ones who got us in this mess . we are paying a loan back the government are struggling to pay back , but the money has been frittered away as usual . we need to come out off the eu as its costing us billions to be in it , only for us to give up are laws and let brussels tell s what we can and can't do . immigrants who come over here for a easy life or to commit crime should be deported straight way . and we should toughen up on border controls like they do in australia . the government should help company to stay afloat by making the bankers giving them more time to pay and help invest in companies and create jobs , that way it would be in are best interests off uk . now the government will probably ban tobbaco companies in this country soon , our biggest revenue . we have a load off youth as well out off work , which the government couldn't give a toss about so then they turn to crime to make money . and also the cost off living is going up , it's going to take at least five years to get out off this mess , and the labour party is not the way forward , they only care about themselves and foreigners .

Further to Gumbo's comments on amberstar's post

Recessions weed out poor and inefficient firms leaving the toughest and most eficient. If I'm buying something (say a new car not that i ever would) and I know there is a lot of unsold stock I'm going to drive a very hard bargain. When the salesman hits me with his 'fixed costs so it's more expensive than before not cheaper' line what do you think I'm going to do? Yep, move on to the next dealer. They'll sell below cost price in the short run (fixed and variable) to recover at least variable costs and hope to tough it out until things improve.

ScottyN1, don?t be too hard on me. I have been called a pompous old fart and a liar on this site so fool isn?t bad : in any event to be foolish isn't too bad you should read Lear.

The other thing you should do ScottyN1 is read my stuff. You only have to wait for 1 year for the bet to materialise. Come on have a bit of fun and lighten up. But beware : my record over the last 4 to 5 years is the best there is. (Apart from the Euro/GBP rate, that is)

Harmonyfuture, good evening. I thought that you all gave nice Mr Elliott a good going over the other day, but he deserved it.

I dont have a downer on France. I think that France is just great. The problem with France is that Mr S (he who must be obeyed) hasn't quite twigged that running society on debt and avoiding dealing with the big issues will eventually (like soon) lead to tears. I haven't yet read M. Seguin's (now deceased) final report on the impact of the so-called crisis on France's problems but he seems, if the reports are correct, to have it right. France's public sector debt and malaise has not much to do with the financial mess but more to do with fundamental underlying problems which have been around for decades : too much state.

I have already posted on nuclear and TGV being in trouble. That should be a wake up call for a country with an enviable engineering tradition.

Fixing the problems is not difficult : sticking up the retirement age would help and freeing up the Unis more rapidly would be a start. But as I have written already on this site The Rep of Ireland is showing the way in biting the bullet.

But fundamentally France is in the same fix as the UK (pay attention ScottyN1 you might learn something, but harmonyfuture has had this before now) it cant compete in a globalised world with developing countries.

As for Greece we shall see what happens this week.

Larsp, but are you prepared to put your money where your thingy is.

I hope Merv knows his onions? Alas when he starts talking 3.2% growth In a year I simply don't believe him. I think the west is in real decline & carbon cuts & taxes will push us over a cliff.

Hi Eachran, thanks for getting back. I first bought a house there nearly 25 years ago and enjoyed being the only Englishman in the commune, now there are Dutch, Germans, Swiss and many more English, who even had their own magazine, though it has gone out of business, don't know what to read into that. The effect on property prices is worrying, the increased bureaucracy and public sector is worrying but I don't encounter high levels of consumerism/borrowing and the increasing amount of public and infrastructure works seems to be matched by increased commercial activity. Banks are much stricter with accounts and local government seems to work efficiently. They do subsidise many sectors but I have always seen this as a positive. I am hoping they iron out the problems with nuclear, we may need it soon, likewise for TGV.
Just my view from the street, it must be different from where you are sitting.

harmonyfuture, ta for reading my stuff.

McKinsey does a useful analysis of country debt and if you look at the heat map in their deleveraging report then France looks OK.

(I wont go through the apples and oranges bit with country comparisons nor will I bore you with the knowledge unrecognised by nearly all professional economists that the crisis is different this time.)

But

France needs to get back to the 3% target and assumes it will in a few years. The problem is that its growth forecasts are as ropey as the UK's and its engineering base has looked under pressure for some years now. Nuclear for example has been posting problems in Finland for 3 or 4 years now and TGV will certainly suffer from global competition particularly from China. Aerospace isnt what it was (I remember Mr S complaining recently that France should not be using other countries' rockets to launch satellites). And motors are struggling.

The government's forecasts are unrealistically optimistic. The conclusion is that gov debt will continue to grow and that future entrants to the workforce will at some stage say to the old, enough is enough.

Countries cannot continue to postpone public sector funding issues as France has done for decades. Ireland has bitten the bullet and whilst the commentators like to write about the small countries like Ireland Greece and Portugal, France isnt that far from Spain in having to address debt issues.

What has saved France up until now is its size, historical importance in Europe and its ties with germany.

Hi Eachran suddenly something rings true and that certain 'je ne sais quoi' my French friends have when discussing economies which I take for self assurance, may just be denial and we all know where denial of debt leads. Thanks Each, I'm listening.