UK warned against a return to the soaraway inflation of the 1970s by a Bank of England rate-setter - advice ??

Question

Households were warned against a return to the soaraway inflation of the 1970s as a Bank of England rate-setter dampened short-term hopes of rate cuts.

Monetary Policy Committee (MPC) member Tim Besley - who pushed for a rate hike in July - said the current price spiral "had to be nipped in the bud" to avoid a return to the era of Saturday Night Fever and Starsky & Hutch.

Writing in the Sun newspaper, Professor Besley said: "It would be easy to give in and let inflation get out of control - that's what happened in the 1970s. But it would be damaging and dangerous to the economy."

Last week official figures showed inflation hitting 4.4% in July - more than double the MPC's 2% target - as rising food, petrol and energy bills sent the cost of living surging higher.

The Bank of England voted to hold interest rates at 5% for the fourth month in a row two weeks ago due to the inflation pressures - despite the looming risks of a recession.

Minutes of the latest meeting, due to be released on Wednesday, are likely to show Professor Besley pushing again for a hike to control inflation expectations although he was outvoted by his eight MPC colleagues.

The rate-setter argued that the current pressure from food and energy bills would recede next year, but warned against inflationary pay deals to cope with the extra burden in the meantime.

"All being well, inflation will fall again next year and will be much closer to the two per cent target by the end of 2009. But that will only happen if people don't chase inflationary wage increases.

"Everyone wants to protect their living standard. But if everyone does it, prices will just go up again as businesses try to cover their higher costs. Then we'll all be back to square one, but with inflation still high," he added.

But in the meantime the UK faces a tough year ahead as the full impact of the credit crunch is felt

Answer 1

start keeping your money under your mattress.

Answer 2

Looooooooooooong question, short answer.

All economies run on a boom and bust cycle. The best thing we can do now is to save our pennies and wait for the economy to recover.

Answer 3

I really don't know enough about economics to give a reasonable answer to your question.

However, I do note with some amusement, other comments saying "Wage Freeze" and "The unions Done for us".

Quite amazing when you see the profits being made by the corporations who are telling us that there must be price rises in their services supplied.

Dont you agree that the best, first step, would be for all of the greedy shareholders and investors to take, and demand, less return on their invested cash.

That way, the average man in the street will need less income to live on.

The publics view of businesses at the moment is that they rake in exorbitant profits whilst crying that they need to increase prices.

At the same time, goods from overseas, and i include dairy produce in this, are generally better quality and the same price, if not cheaper.

So, sad to say, it looks like curtains for many British industries.

Answer 4

Interest rates need to be rising by half a point immediatley and there must be wage freezes as much as possible.

Its short term pain for a long term gain.

Unfortunately the lay public probably dont have enough of a grasp of economics to understand this.

Answer 5

The biggest risk is unreasonable pay demands by the Unions. It was they, in the main, that did for us in the 1970's.