Tuesday, 12 April 2011

Inflation down but problems up

The Government’s target measure of annual CPI annual inflation the Consumer Price Index(CPI) was unexpectedly down in March at 4.0 per cent in March from 4.4 per cent in February.

This was due in large part to the drop in food and drink prices which fell by 1.4 per cent in the month. 

For similar reasons the Retail Price Index(RPI) annual inflation was 5.3 per cent, down from 5.5 per cent in February.

At 4%, though, CPI remains at double the Bank of England's official target for inflation of 2%. 

These figures will undoubtedly ease the pressure  being urged on the Bank by some economists to increase interest rates.  But it is still a moot point as to how long they can hold the rates  at the current historic low level with inflation at double their target rate.

In comparison with our European Competitors the UK figures are considerably higher, the CPI shows that the UK inflation rate in February was way above the provisional figure for the European Union. The UK rate was 4.4 per cent whereas the EU’s as a whole was 2.8 per cent.

Whilst today’s news may give a modicum of cheer to the Chancellor, George Osborne, the prospects for the economy as a whole for this year continues to be gloomy and there is little comfort for him from the IMF.

They, the International Monetary Fund (IMF), have cut their 2011 growth forecast for the UK economy to 1.75%. The third downgrade in a year.

This  underlines the fact that Britain faces a year of low growth and rising unemployment with little prospect of a job-creating recovery until later in 2012.

Such figures point to the need  to boost Britain's growth prospects considerably more than the Chancellor's attempts in his recent budget. 

The IMF report certainly gives credence to Plaid Cymru’s attempt to boost the Welsh economy by investing in hospitals, schools, housing and transport through a not for profit company. In their manifesto they say that the aim of this Build for Wales company is to create 50,000 jobs.  This is the kind of boost the Welsh economy needs and is not too ambitious in the light of the IMF report on the prospects for the UK economy. It is certainly true that if the UK economy is at slow then the effect on Wales is an abrupt stop.

There are no signs yet that the Westminster government are reflecting on the IMF forecast and going for the classic Keynesian solution of increasing public capital expenditure to push up growth. 

Indeed their policy of cuts in public expenditure would seem to be the wrong medicine for the UK economy. And what is bad in UK terms spells disaster for Wales. The Westminster coalition's  medicine is killing off any hope of the Welsh economic patient making any sort of recovery in the near future.

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