Monday, December 13, 2010
Bean on the 2011 outlook
Posted by David Smith at 02:00 PM
Category: Thoughts and responses

The speech by Bank of England deputy governor Charlie Bean on the outlook for 2011 and beyond provides a generally conventional Bank view, as you would expect. Inflation will come down after VAT and other distortions have worked through, but we're watching inflation expectations like hawks.

The global and UK recoveries (nearly 5% and 2.8% respectively) have been pretty good but there is a question about whether UK households have grasped the extent of the fiscal tightening that lies ahead and whether the banking system will be strong enough to support a business investment recovery.

A couple of interesting snippets. Emerging economies may be justified in erecting temporary capital controls against financial flows from advances economies (the search for yield again) and UK banks should be strong enough to withstand direct losses from Ireland, Greece, Portugal and Spain. Even then, the indirect effects could get us. The speech, worth reading, is here.