Comments: The two faces of Gordon Brown

There’s a tide which taken at the flood… Well, Gordon missed the boat at the end of last year when it comes to his chances of becoming PM. If he’d struck then he would have been ushered swiftly to the top job by a relieved party and a grateful nation. But the opportunity has gone.

I think Gordon has done a good job on tweaking the system to reduce poverty but he’s not helped business enough – the people that create wealth in the first place. He’s done a good job in creating the MPC, resulting in stable inflation and a stable currency, but his tax policies have done nothing to stabilise housing and pensions.

Now that consumption is set to fall and unemployment rise the public mood will turn against Gordon (and be fuelled by resentment at his failure to take on Blair).

Which brings us to the MPC and the rate rise. To my mind, having to hold interest rates would be the bad news rather than raising them. If the MPC has to keep ‘real’ interest rates below the historical norm it means the economy can only get by on stimulants – a binge-borrowing junkie hooked on low rates.

Well we’ll get a feel for how the withdrawal symptoms are going with the Jan. trade figures on Wednesday and construction orders on Thursday; the same day as the MPC decision.

My guess is the MPC will wait until April for a move. The next US rate rise will come on March 22nd. We’ll see the UK CPI figure for February on March 23rd (a ‘normal’ figure, not distorted by the January sales). With luck, a bit of Spring sunshine should take away the pain of a quarter-point rise in April.

Posted by David Sandiford at March 6, 2005 11:32 AM

Not sure if i trust the CPI yet, the changes from RPI-x are too significant to be ignored, and the reason's for its introduction were simply too weak. (See the Treasury's 'remit to the MPC and the new inflation target', december 2003 or the ONS's 'the new inflation target). The measures should be converging, though there's little evidence of this - over a year later.

Fundamentally, i don't think its possible for everyone to instantaneously shift their notion of what inflation actually IS upon its redefinition. Though the MPC still look at all 3 measures, my savings didn't feel particularly well defended a couple of months ago - when RPI hit 3.6% and the CPI hardly battered an eyelid. Despite the former target rate RPI-x still being in the safe -zone bracket - Mr. King wasn't unimaginably far off from writing an explanatory note to Gordon.

Maybe the measures will converge, but there needs to be some kind of change, CPI means nothing to all that is 'index linked'. My answer, simple: re-instatement of the RPI-x

Posted by Albert at March 6, 2005 12:20 PM

Last week we were led to ask the question, what is growth? This week we’re asking ourselves what is inflation? The way Bush and Blair are behaving we’re being forced to ask the questions what is democracy and even what is freedom? We used to think an array of checks and balances kept all these things well within our comfort zone. Now we’re not so comfortable.

The shadow MPC just voted 1-5-3 for an interest rate cut-stick-raise respectively.

The point is that people see that things need to be done about various problems beyond the basic issue of inflation. Gordon Brown should be tackling these problems (excessive borrowing, the house price bubble and the trade deficit) but he’s doing nothing.

Just as in Australia, the central bank is going to have to manage the whole economy, not just inflation, at a time when the economy is becoming unstable. The MPC members had better reach for their tin hats.

Posted by David Sandiford at March 7, 2005 03:49 AM
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