Yesterday on schedule the BOE monetary policy committee met to discuss interest rates & today at noon their decision was announced. No big surprises - interest rates held at 0.5% for another month, and no quantitative easing for now. Their big headache though is that their key task is to keep inflation down & for over 12months inflation has been running at over 1% more than their 2% target. So really they should be putting interest rates up to try to reduce demand and thus inflation. But with oil prices at such high levels historically (just take a look at the graph below - it's a little out of date & today we're basically at $100 - just a couple of years ago oil was about $20 a barrel, now $100 and rising), that affects the costs of producing nearly everything & the cost of transporting everything. So inflation is high not because of too much demand, but because of costs rising...
If retail price inflation is running at around 5% and people are on near pay freezes clearly the amount of goods being purchased will be falling and this is really bad news for the economy and the pace of recovery from recession, but trying to reduce inflation by putting interest rates up would make mortgages unaffordable to many of these same people leading to further house price crash & repossessions. I can't help thinking that there is a big house of cards forming again and we could have some really dramatic global economic trouble in the next two years if oil prices and other commodity prices don't fall taking inflation with it.
why is the coalition dragging its feet with regard to conservative party proposals prior to the election which hinted at using a 'fair fuel stabiliser' whereby the actual retail price of petrol would not be so volatile as the duty would be proportionally reduced when the oil price picks up and conversely when the oil price recedes, the duty increases to cover the shortfall to the Exchequer.
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