“The distinctive context that prevails in the UK – of higher natural gas prices with a tight labour market, adverse labour supply developments and goods market bottlenecks – creates the potential for inflation to prove more persistent.” Chief Economist of the Bank of England
And how does raising interest rates fix any of those underlying causes?
@andydavies Generally, by making things worse for people which is why they dance around it.
Raising rates reduces disposable income, cutting demand. Lower demand cascades through supply chain.
Reduced demand and harder-to-access money reduces funds for employing people, reducing salaries and hiring (increasing unemployment).
Lower wages further reduce demand, etc which is where risk of tanking "the economy" comes in.
@PatMeenan Yeh, I understand the orthodox for raising interest rates
In this case where disposable income is already being reduced by higher energy prices, and higher general everyday costs I don't see interest rates as going to really affect them
GBP might rise against USD which makes oil / gas imports cheaper but surely the answer is to promote energy efficiency and energy prices in GBP
Energy efficiency seems harder to achieve in the short term, and relies on self restraint which the lack thereof got us where we are... Forcing further frugality by necessity might have an impact on demands for non essential goods. The energy aspect might see some improvements as a result of that (less goods to transport/create). That said, it's not clear how much margin that is vs. the war in Ukraine and how that gives pricing power to the gas suppliers.
@kbx @PatMeenan There’s quite a lot that can be done to Britain’s housing stock to improve it’s energy efficiency
There’s plenty that’s straight forward if we can find people to do it e.g. loft insulation but also lots that’s harder e.g. external insulation on old cottages like mine
@andydavies @kbx I assume the knobs interact. The bankers (Fed in the US) can't incentivize efficiency or energy costs directly so the main knob they have to control inflation is rates.
If efforts to improve efficiency lower energy costs (increasing adoption, incentives, etc) then the energy part of costs would come down and they would be free to lower rates back down (or at least not increase).
Andy Davies
Patrick Meenan
Kenji Baheux has moved