Although numerous loud voices of late have been insisting that an increase in interest rates would be a mistake, a rise remains inevitable.
The three members of the MPC who have been voting for a rate rise, continue to vote for a rate rise despite recent wobbles in the economy and uncertainty abroad, caused by Japan and the Middle East. Photo: GETTY
A more doveish sounding set of minutes yesterday from the Monetary Policy Committee (MPC) doesn't change that. In fact very little, if anything, has happened of late to change the UK economy's inherent weakness to inflationary pressures. Our economic Achilles' heel is getting worse.
The economy's bumpy road to recovery continues unchanged with some quarters better than others. High street demand is getting weaker, as evidenced by several profits warnings from retailers, but that won't be enough to significantly dampen overall inflationary pressures.
A weaker pound has boosted exports by making them cheaper but continues to suck in increasingly expensive imports.
The MPC said it was "puzzling" that import growth had remained so robust, despite the pound's devaluation. But we stopped making most of what we're consuming a long time ago (as the MPC postulated in its minutes) which is one of the flaws in the structure of our economy that lays us open to imported inflation.
It's a reminder of why rebalancing the economy away from financial services is important, not just to give us a more diversified and therefore more robust economic base but also to insulate us from cost pressures from abroad.
But that process will take a long time and certainly won't help bring our immediate inflation problem under control.
Significantly, three members of the MPC who have been voting for a rate rise, continue to vote for a rate rise despite recent wobbles in the economy and uncertainty abroad, caused by Japan and the Middle East.
A persistent belief of the doves is that the economy carries a wide margin of spare capacity (unemployment) which will dampen wage growth and cool inflation. But this spare capacity is unlikely to be as meaningful as the academic economists assume.
An increasing proportion of the unemployed do not possess the requisite abilities to join the ranks of the employed without expensive remedial training by reluctant employers. Companies are fishing in an increasingly small pool of employable candidates, meaning wage inflation may not be as dormant as some experts assume. Immigrant workers appear to be helping dampen wages for the moment but relying on this as a permanent source of cheap labour is risky from a political point of view.
Global demand for commodities such as energy and food continue on their upward trend. Which brings the debate back to timing. Rates could have risen this month without causing economic ruin and if they rise next month or in three months it's largely academic.
Far more important is starting the process with small increases that re-establish the MPC's inflation-fighting credibility, and avoid the need for larger, knee jerk rises later that will smack of panic and ironically have less effect than starting a calm and controlled process of monetary tightening now.
Significantly, three members of the MPC who have been voting for a rate rise, continue to vote for a rate rise despite recent wobbles in the economy and uncertainty abroad, caused by Japan and the Middle East.
A persistent belief of the doves is that the economy carries a wide margin of spare capacity (unemployment) which will dampen wage growth and cool inflation. But this spare capacity is unlikely to be as meaningful as the academic economists assume.
An increasing proportion of the unemployed do not possess the requisite abilities to join the ranks of the employed without expensive remedial training by reluctant employers. Companies are fishing in an increasingly small pool of employable candidates, meaning wage inflation may not be as dormant as some experts assume. Immigrant workers appear to be helping dampen wages for the moment but relying on this as a permanent source of cheap labour is risky from a political point of view.
Global demand for commodities such as energy and food continue on their upward trend. Which brings the debate back to timing. Rates could have risen this month without causing economic ruin and if they rise next month or in three months it's largely academic.
Far more important is starting the process with small increases that re-establish the MPC's inflation-fighting credibility, and avoid the need for larger, knee jerk rises later that will smack of panic and ironically have less effect than starting a calm and controlled process of monetary tightening now.
