Sky News business editor Michael Wilson

Even though the no change decision was unsurprising, the mood is changing slightly.

There’s a feeling that the Bank of England is likely to stay its hand over the next few meetings if, as expected, the Government’s preferred measure of inflation jumps above its present 3% level – perhaps over the summer.

So the latest inflation figures, due on June 17, will be crucial. What’s now dangerous is that most people now know all about inflation, since they see it everyday in their household bills. If that feeds through into wage expectations – and the response has been muted so far – then we are in real trouble.

The next few months are going to be very hard. There will be much discussion about exactly how the housing slowdown hits consumer spending, and there will be much wondering about whether the Bank of England needs to have a wider role in steering the economy. Witness how the US central bank, the Federal Reserve, cut rates dramatically to help the slowdown.

The Bank of  England won’t be doing that. The interest setters are facing their biggest test yet. The Old Lady will maintain a very strict regime, and we will all feel the pain.

Comments

[Elizabeth Davies Cape Town 6 Jun 2008 12:46:34]

Ok times are bad, so it's time to "Back British".
Mrs Thatcher had the right idea way back.
If you are patriotic stay at home, buy British, have a barby in the back yard, stick English porkies on the fire, and drink English wine and beers. There you go enjoy the pleasures of home...it's not all bad. Today is "poets day"...push off early tomorrow is Saturday, and lift that British stiff upper lip and smile.

[purps, chelmsford 5 Jun 2008 15:24:19]

Michael,

The MPC were wrong today, they run the real risk of driving the economy into the ground.

Fact; real rates LIBOR is disconnected from official rates, therefore the rates affecting the UK economy and Joe Blogs on the street is the three-month rate, this rate is 75bp above official rates. Therefore, the official rate of 5% set by the BOE >MPC< needs to be adjusted down by 75bp to bring the Libor in line with the current 5% level deemed suitable by the MPC to pressure inflation lower. Alternatively, they need to be transparent and say they have no power to set rates as the market is setting rates to the consumer and the official rate is meaningless.

Michael, I posted on this blog, at the time of the Northern Rock fiasco to give the Bank of England room to act, the Treasury and Chancellor needed to raise the target rate of inflation to 3.5% or suspend the 2% target until the credit crunch period had passed. This would give the bank the necessary tools in its box to fight the recessionary impact of the credit crunch and failures in the banking system.

The UK should have lowered VAT levels and stop this stupid house building programme of three million houses, this is helping to drive house price down, excess supply, the UK economy is built on house ownership and confidence in house prices, it is psychological, although we would all like to see young people get a start in life, the bottom line is we are all mortgaged up and nobody likes to see the value of their house fall. This spreads negativity throughout the general economy.

The Purps
Brown making a crises out of an accidental drama.

[Michael Cornwall 5 Jun 2008 14:46:28]

At the moment no one is steering,that is why people are agitated with the government.

[Khalid 5 Jun 2008 13:23:19]

Sir
Since the very independent nature of the BoE has curtailed many a disaster without political rhetoric, the rise in inflation can only be blamed upon the governing bodies within such laborious camps of government.
Taking for example the £2.7bn gamble to buy a vote or two, that incidentally backfired above any rate of inflation or historical interest, it is these fiscal policies that make the work of UK household that much more tedious and at the best of times frustrating.
The figures due out circa June 17th remain indeed to be seen, however, once the underlying rate of inflation has been removed from calculations and real inflation figures emerge, then unlike our US counterparts there will be no need to insanely reduce the rate of interest just so to please politicians.
What the nation needs is action not words insofar as to bring Utilities and other such council of taxes in line with real issues, then and only then will we be able to breath a sigh of relief.
Having said that, judgement shall be made once the figures are release on the 17th June, as unlike government the Bank is going [All The Way-Craig David]