Decision Time on inflation and growth - blame TINA

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It seems likely today that the Monetary Policy Committee of the Bank of England will decide to keep the base rate of interest at 5%

In another article from the BBC, Brian Hilliard, chief UK economist at Societe Generale, is quoted as saying:

“The activity data is crying out for rate cuts, but the inflation story is preventing that happening. Everything is pointing to a sharp and painful economic slowdown.”

This is policy conflict in action: the dilemma inherent in deciding which economic objective is most important - and thus which side-effect must be endured to achieve it.

In addition, the OECD disagrees with the Treasury’s predictions for UK growth.

The Organisation for Economic Co-operation and Development cut its forecast for UK economic growth in 2008 to 1.8% and to 1.4% in 2009. This is much more pessimistic than Chancellor Alistair Darling’s view that the UK economy will grow by between 1.75% and 2.25% in 2008 and by 2.25% to 2.75% in 2009.

Not only are the OECD forecasts considerably lower, but in 2009 Darling expects a recovery which the OECD seems to think is unlikely.

Some thoughts on the possible thinking in official quarters:

1. Perhaps with a (global) slowdown inevitable (see here for news on the ‘oil price indicator’ of the growth of NICs), now is the time for policy-makers to keep inflation under control so, when recovery does come, it is not hindered by spiralling prices.

2. Perhaps subdued demand (the High Street is, inevitably, struggling too) will bring down demand-pull influences on inflation, allowing future monetary policy to be looser.

3. Never say slowdown, never say recession, always stress the positive! Confidence about the economy can be as important as the actual strength of the economy, especially in the short-run, in maintaining business and consumer spending.

4. Perhaps this is an important readjustment process which will, in the long-run, bring more balance to the UK housing market, the pattern of household saving and debt, and the current account (with sterling depreciating because of trade fundamentals rather than because of outflows of hot money).

Dull, neutral policy then, at noon today? But a necessary one all the same.

A recent article in The Times referred to an acronym I have not heard before: TINA: There Is No Alternative -to free markets and their, possible painful, resolution of economic issues.

But could it be argued that it’s free markets that have got us into this position in the first place?