The annual rate of consumer price inflation (CPI) eased to 3.6% in January, down from 4.2% in December. This was due chiefly to the fading impact of last year’s VAT increase to 20%. The Bank of England, which last week announced it would extend its quantitative easing (QE, or money printing) programme by another £50bn, expects inflation to be back to its 2% target by the end of 2012.
In the fourth quarter of 2011 unemployment was marginally down on the September to November period. Credit ratings agency Moody’s, confirming what everyone already knew, said that Britain could lose its triple-A rating as weak growth could make the austerity programme harder to deliver.
What the commentators said
The good news is that inflation is easing – for now, at least – and the trend is alleviating the squeeze on household spending, a key reason for recent weak growth.
But we can’t expect a rapid recovery, even if inflation doesn’t prove as sticky as it has in recent years. As Capital Economics pointed out, it will be many months before inflation falls below earnings growth, so real pay continues to fall.
quantitative easing
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In any case, households still have plenty of debt to pay down, said Jeremy Warner on Telegraph.co.uk. Their debt has fallen from a peak of 166% of income to 148%. Expect “very muted” domestic demand for many years. Throw in the fact that the government and banks are also deleveraging, and “you have to wonder where on earth the growth is going to come from”.
Widespread deleveraging is the reason why there has been no significant economic recovery following two injections of QE: there is no demand for the cash. Instead, as Sam Fleming noted in The Times, the worry is that all this printed money will eventually lead to a jump in inflation. QE is not going to “wrest Britain from the economic morass”.
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inflation indicators.