Comments: Closer than we thought

This squashes all of the hype surrounding further rate cuts, as this could be the only concession that the housing market and the retailers are going to get.

There is absolutely no way that rates are going down further now, not with inflation figures like 2.3%.

I paid 92.9p a litre to fill up my car today. The longer this goes on the more it's going to hurt.

Good on Mervyn for voting to hold.

Posted by Warwickshire Lad at August 17, 2005 10:34 PM

WL wrote ďThis squashes all of the hype surrounding further rate cutsĒ.

Well, itíll take more than a confrontation with the facts to stop media bias when the press has such a strong vested interest in property market advertising.

Reporting before the August rate decision was biased. It was as bad as the run-up to the Iraq invasion. Every minor economic report that supported the case for a cut was trumpeted as making a cut certain. Major economic news that went against a cut was dismissed as a mere complication - because the MPC would cut anyway.

There are still articles talking about this having been the peak of the cycle. Iím sure the Governor would dismiss talk of an interest rate cycle in the same terms as Brownís so-called economic cycle.

I think the decision to cut was wrong. The MPC now has the worst of both worlds - the pound has risen because of the close vote, hurting exporters, and consumers have been encouraged by the media to borrow more. Itís a case of having been better to travel in hope than to arrive.

Posted by David Sandiford at August 18, 2005 10:42 AM

Neither the current rate of inflation nor the narrowness of the vote preclude further rate cuts. What matters is what happens from now on. If the Bank is right on growth and inflation, rates won't fall. If it is wrong, as over the past 12 months, they could fall.
Don't see a media conspiracy in everything - it isn't very intelligent. The slowdown evidence was there - and still is (see today's non-food retail sales figures). I'll argue for what I think is right, whether it is lower or higher rates.

Posted by David Smith at August 18, 2005 11:28 PM

Please donít take any criticism of the press personally, David. I think you predicted at the start of the year there would be a rate cut and youíve been proved right. Iím sure your view is based entirely on the economic fundamentals Ė although, presumably, Mervyn King takes a different view.

But media behaviour should be open to scrutiny since the media influence public behaviour. Business people and politicians/civil servants are scrutinised but who supervises the media? The MPC acknowledges the important role of the media through their press conference and speeches. Equally, I think the Governor has been critical of the mediaís questions recently.

But I donít think thereís a media conspiracy in the Adam Smith sense. I think itís a case of evolution. Media bias has evolved through a process of random mutation until the system we have is the one fittest for the survival of Ö the media. Each story is a little mutation and it turns out that the stories that survive best in the consumer environment are those that produce an emotional response in the reader. Fear and greed are the strongest emotions. Emotive stories sell (survive) better than a balanced weighing of the facts. Stories of hope for the housing market are also good for the media. But thatís just my theory.

In this case, thereís also an argument for saying the next interest rate move could be up Ė not for the good reason of wanting to slow an economy growing too fast but for the bad reason of being forced to deal with inflation getting out of control. Imports from China must eventually stop falling in price. Businesses, especially services, could very well start to pass on rising costs rather than absorb them in the hope of increasing market share. The dollar could rise on the back of a booming US economy and rising US interest rates Ė pushing up the cost of all commodities for the UK. It wouldnít matter if the economy did slow; the MPC would have to act.

Posted by David Sandiford at August 19, 2005 07:56 AM
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