Tara Palmer-Tomkinson has never done a day's real work in her life. She is s serial hard-drug abuser, to such an extent that she recently had to have most of her nose replaced. If she was from Croxteth or Balsall Heath or Byker or Peckham, she'd have the police raiding her house all the time and David Cameron would be planning to take away her benefits. But she's not from any of those hardscrabble places; she's from West London, and so she was able to take her place at the Royal Wedding yesterday, in the company of the aforementioned Prime Minister.
I think that's what drives a lot of us to contemplate abolishing the monarchy and the peerage and turning the UK into a republic. It's not so much the inherited wealth -- dukes are just as good at pissing that away as the rest of us. It's the inherited privilege that rankles, because it means that a complete waste of space like Tara P-T not only avoids repeated harassment by the constabulary, but is able to score an invitation to Westminster Abbey along with the genuinely great and good (and Elton John).
That said, however, the redoubtable Chris Dillow this week produced a timely warning:
If we had an elected presidency, what sort of preening, self-loving narcissistic egomaniac would think they were capable of representing and symbolizing the nation? (Tony Blair, you all answer.)
Erkk! Time for second thoughts perhaps. So two cheers for the new Duke and Duchess of Cambridge -- but please guys, try to be more careful with the invitations* in future, will you?
* They omitted both Tony Blair and Gordon Brown from the Westminster Abbey guest list, which looks like a deliberate snub. A good start.
Saturday, 30 April 2011
Wednesday, 27 April 2011
UK Q1 GDP: it's not great, but it's not "flatlining"
Anyone care to parse this sentence, taken from today's "Independent"?
Sluggish GDP growth of 0.5% between January and March reverses a shock decline at the end of 2010 which is likely relieve pressure on Bank of England to raise interest rates in the face of soaring inflation.
Just how many years of education does it take to learn to write like that? Still, though that may be the worst piece of "analysis" of today's GDP data, it's not just the subs at the Indy who have struggled to present the data properly. BBC News 24 says that the economy grew in Q1 for the first time in six months, which makes it sound as if output fell in Q3 as well as Q4/2010, which it didn't. Even the normally-reliable Jeremy Warner at the Telegraph has succumbed. His blog says the UK "economy has gone nowhere for six months. It has flatlined, or plateaued".
That's a very misleading description, except in the very specific statistical sense that the gain estimated for Q1 exactly matches the decline seen in Q4/2010. However, the weakness in Q4 was entirely concentrated (as far as anyone can tell) in December, when the weather was so disruptive. That's significant because it means that GDP in December was well below its average for the whole of Q4. That in turn means that it required a sharp bounce back at the start of Q1/2011 just to get the economy back to the Q4 average, so 0.5% average quarter-to-quarter growth is not to be sneezed at. Far from "flatlining" or "on a plateau", it's likely that the economy grew in October and November, nosedived in December, and has grown in each month of Q1 -- which is five months of growth out of the last six.
Today's data will no doubt be revised, and there's some suggestion that the revisions may be upwards. The reported sharp fall in construction activity in the quarter has been greeted with surprise by the industry itself. The more important question, however, is what happens next. The plethora of bank holidays (Easter, Royal Wedding etc -- five in total) may exert some downward pressure on Q2 output, though these effects generally tend to be less than expected, and the fact that the holidays are concentrated in the first half of the quarter, so to speak, will further limit their impact. Announced production cutbacks at the Japanese car plants will also have some impact, though as none of the workers will be fully idled,the effect of this on overall GDP is difficult to predict.
And then, of course, there's the government spending cuts to worry about. Despite all the heated rhetoric from Ed Balls et al about how the government's fiscal tightening has been strangling the economy, it's only from this quarter on that actual spending restrictions really start to kick in. (The recent fiscal data from the ONS showed that government spending actually rose in March, though of course debt servicing was a big part of that). Once the Royal Wedding hoo-ha dies down, the national mood may take a turn for the worse, putting a crimp in consumer spending in particular. There's still no reason to fear the dreaded double-dip recession, but the next few months, like the recent past, may be more roller-coaster than flatline.
Sluggish GDP growth of 0.5% between January and March reverses a shock decline at the end of 2010 which is likely relieve pressure on Bank of England to raise interest rates in the face of soaring inflation.
Just how many years of education does it take to learn to write like that? Still, though that may be the worst piece of "analysis" of today's GDP data, it's not just the subs at the Indy who have struggled to present the data properly. BBC News 24 says that the economy grew in Q1 for the first time in six months, which makes it sound as if output fell in Q3 as well as Q4/2010, which it didn't. Even the normally-reliable Jeremy Warner at the Telegraph has succumbed. His blog says the UK "economy has gone nowhere for six months. It has flatlined, or plateaued".
That's a very misleading description, except in the very specific statistical sense that the gain estimated for Q1 exactly matches the decline seen in Q4/2010. However, the weakness in Q4 was entirely concentrated (as far as anyone can tell) in December, when the weather was so disruptive. That's significant because it means that GDP in December was well below its average for the whole of Q4. That in turn means that it required a sharp bounce back at the start of Q1/2011 just to get the economy back to the Q4 average, so 0.5% average quarter-to-quarter growth is not to be sneezed at. Far from "flatlining" or "on a plateau", it's likely that the economy grew in October and November, nosedived in December, and has grown in each month of Q1 -- which is five months of growth out of the last six.
Today's data will no doubt be revised, and there's some suggestion that the revisions may be upwards. The reported sharp fall in construction activity in the quarter has been greeted with surprise by the industry itself. The more important question, however, is what happens next. The plethora of bank holidays (Easter, Royal Wedding etc -- five in total) may exert some downward pressure on Q2 output, though these effects generally tend to be less than expected, and the fact that the holidays are concentrated in the first half of the quarter, so to speak, will further limit their impact. Announced production cutbacks at the Japanese car plants will also have some impact, though as none of the workers will be fully idled,the effect of this on overall GDP is difficult to predict.
And then, of course, there's the government spending cuts to worry about. Despite all the heated rhetoric from Ed Balls et al about how the government's fiscal tightening has been strangling the economy, it's only from this quarter on that actual spending restrictions really start to kick in. (The recent fiscal data from the ONS showed that government spending actually rose in March, though of course debt servicing was a big part of that). Once the Royal Wedding hoo-ha dies down, the national mood may take a turn for the worse, putting a crimp in consumer spending in particular. There's still no reason to fear the dreaded double-dip recession, but the next few months, like the recent past, may be more roller-coaster than flatline.
Tuesday, 26 April 2011
After the goldrush
There could be no more certain indicator than this that the spiral in gold prices is nearing an end: the reliably unreliable investment sections of the weekend newspapers are starting to tout the metal to their credulous readers. Yes, the same people who spivved millions of Brits into putting money into unpronounceable foreign banks a few years ago, triggering huge costs for the taxpayer when said banks collapsed, are now teasing their readers with headlines such as "Can you gain in the gold rush?"
It's true that gold prices are at record levels in US dollar terms, so there's certainly been money to be made if you got in at the right time. Take a look at the medium-term price chart, from goldprice.org.
You'd have made money out of gold by getting in at any time since 2002, and there was an entry opportunity in late 2008 when the price briefly fell back. But one of the few rules of investment that almost always works is "buy low, sell high", and the folks at the weekend papers are now cheerfully telling small investors to do the exact opposite. Small investors who pile into a long-running trend at a late stage rarely make money. Usually they just give those who got in early a chance to get out at a big profit. Gold may yet move higher, but it would be prudent to assume that the big profits have already been made.
One person who thinks so is Bill Emmott, former editor of The Economist, now plying his trade for News International. His column in The Times on Monday was titled "The end of the golden age will soon be with us". (Paywall protected, sorry). It's a good, balanced analysis of the factors that have pushed gold up so far. Unfortunately one of The Times subs who couldn't be bothered to read it properly stuck this entirely misleading sentence below the title: "The dramatic rise in precious metal prices is not a sign of Western inflation but of turmoil in the Middle East" . The "Arab spring" only began in January so it's hard to see how it can be the cause of a rise in gold prices that's now lasted for almost a decade.
There's no need to look much further than US Fed policy for the real cause. If the Fed signals an end to quantitative easing, which it could possibly do as soon as this week's FOMC statement, gold may start to lose some of its appeal.
Thursday, 21 April 2011
It's good news week
Another gloriously warm and sunny day here today, and for once, we have economic data to match.
* The Society of Motor Manufacturers and Traders (SMMT) reports that UK vehicle production in March was 14.8% higher than a year ago, bringing the increase for Q1 as a whole to 13%. Aided by a weak exchange rate and strong foreign demand, vehicle production has risen in each of the past eight months. Closures at Toyota, Honda and Nissan plants in the next few weeks, as a result of parts shortages, will crimp the Q2 data, but the underlying picture is strong.
* Retail sales rose 0.2% in March, to be 1.3% above March 2011 levels in volume terms. Remarkably, BBC News turned to the British Retail Consortium for comment on this, even though the official data comprehensively refuted the BRC's own bogus survey, which had shown a sharp fall in sales. The BRC's Richard Dodds allowed as he was "surprised" by the data, and maintained that the underlying trend was weak. Well it isn't, Richard -- just look at the data again, will you? (The only "surprise" with BRC data is the rare occasion when it's within loudhailer range of the truth). Warm weather, a late Easter and the Royal Wedding (got your Waity Katey Platey yet?) should ensure another positive outcome this month.
* The ONS announced today that public sector borrowing for the fiscal year ended 5 April was £141.1 billion, below the forecast of £145.9 billion and 10% lower than in the previous fiscal year. All that lovely VAT rolling in from strong retail sales this month should get the new fiscal year off to a good start.
So, a double-dip recession? You can never say never, but you can confidently say "not right now". Happy Easter!
* The Society of Motor Manufacturers and Traders (SMMT) reports that UK vehicle production in March was 14.8% higher than a year ago, bringing the increase for Q1 as a whole to 13%. Aided by a weak exchange rate and strong foreign demand, vehicle production has risen in each of the past eight months. Closures at Toyota, Honda and Nissan plants in the next few weeks, as a result of parts shortages, will crimp the Q2 data, but the underlying picture is strong.
* Retail sales rose 0.2% in March, to be 1.3% above March 2011 levels in volume terms. Remarkably, BBC News turned to the British Retail Consortium for comment on this, even though the official data comprehensively refuted the BRC's own bogus survey, which had shown a sharp fall in sales. The BRC's Richard Dodds allowed as he was "surprised" by the data, and maintained that the underlying trend was weak. Well it isn't, Richard -- just look at the data again, will you? (The only "surprise" with BRC data is the rare occasion when it's within loudhailer range of the truth). Warm weather, a late Easter and the Royal Wedding (got your Waity Katey Platey yet?) should ensure another positive outcome this month.
* The ONS announced today that public sector borrowing for the fiscal year ended 5 April was £141.1 billion, below the forecast of £145.9 billion and 10% lower than in the previous fiscal year. All that lovely VAT rolling in from strong retail sales this month should get the new fiscal year off to a good start.
So, a double-dip recession? You can never say never, but you can confidently say "not right now". Happy Easter!
Tuesday, 19 April 2011
IOU = UOMe
A sentence you never expected to read here: well done S&P for your timely action in placing the USA's AAA credit rating "under review". (Slate story by Annie Lowrey here). All past experience would have suggested that S & P (and its equally farsighted rivals at Moody's) would only have taken such an action the day after the US had actually defaulted on its debts and thrown the global financial system into meltdown. Instead it's almost gone too far in the opposite direction: its warning is not over an imminent fiscal problem, but over the longer-term consequences if American politicians can't get their act together in 2013. (They're assuming, almost certainly correctly, that nothing meaningful can get done before the 2012 Presidential elections).
A crisis of some sort could, of course, come sooner than S & P predicts. The debt ceiling needs to be raised in the next few weeks, or a government shutdown will be inevitable in May, and the US would become unable to repay its maturing debts some time in early July. There were few signs of willingness to compromise during the recent budget standoff, so this can't be ruled out, but even if some sort of deal gets made, S & P is surely right to assert that something needs to be done before too long to set the US on a more sustainable fiscal course. Mohamed El-Erian of PIMCO, a man who knows a bit about bonds, has called the S & P move "a timely warning".
The most fatuous comment so far on these events has come from one UK commentator (left nameless to protect the guilty) who suggests that a US ratings downgrade might not matter that much. After all, the "argument" goes, Japan lost its AAA rating a decade ago and currently borrows money at 1.25%. That's true, but it borrows at those rates from its own savings-obsessed people. Japan is not constantly rampaging around the world in a desperate hunt for new creditors, as the US is. Borrowing from abroad changes the whole complexion of the problem. Let's look at that in more detail.
There have always been plenty of economists who are prepared to argue that government borrowing is harmless because "we owe the money to ourselves". That's sometimes expressed in the "IOU = UOMe" identity, and if you recall your high school algebra, you can strike out the common factors on each side, which reduces the equation to the obviously true proposition, "I = Me".
So there's no problem, right? Well, that might have been the case at one time in Japan (or Italy, another country of savers), but even in those cases there are issues. For one thing, borrowing risks transferring wealth from the poor (who get taxed to pay the interest on the borrowings) to the rich (who get taxed, but also earn the interest on the bonds). For another, there's the intergenerational aspect: "I" am borrowing the money now, but the "Me" who's being counted on to pay it back may actually be Mini-Me i.e. my children and their children, who weren't consulted. You can make a case for this as long as "I" am borrowing to invest, but it's a lot harder to justify if "I" am just consuming the proceeds. And the case gets even tougher to make if there are just not enough Mini-me's in prospect to repay the debt, as a result of demographic trends. This is Japan's predicament now.
In the debt-happy USA, of course, the "IOU" equation stopped being relevant years ago. Americans owe money to everybody, including a lot of countries they'd really rather not be beholden to. It all works fine as long as the US dollar remains the preferred international reserve asset, because that means that foreign investors are willing to hold the dollar-denominated debt that the US spews out in order to finance its spending. However, there are signs that the appetite for USD assets may be approaching its limits. OPEC countries seem to be trying to move away from exclusively dollar-based pricing. Criticism of US profligacy and the tidal wave of dollars it creates is being heard even from notionally friendly countries like Australia and Brazil, who are afraid of another bout of asset price inflation.
There's no sign of a buyers' strike over US debt yet (although the US is certainly not able to borrow at 1.25% or anything like it), but the S & P rating action should serve as a warning that things could change, and if they do, the ramifications for the global financial system are terrifying. Whether this concentrates the minds of the White House and its array of opponents remains to be seen; it's just as likely to become another element in the endless high-decibel buck-passing and mudslinging that has supplanted fiscal debate in Washington.
A crisis of some sort could, of course, come sooner than S & P predicts. The debt ceiling needs to be raised in the next few weeks, or a government shutdown will be inevitable in May, and the US would become unable to repay its maturing debts some time in early July. There were few signs of willingness to compromise during the recent budget standoff, so this can't be ruled out, but even if some sort of deal gets made, S & P is surely right to assert that something needs to be done before too long to set the US on a more sustainable fiscal course. Mohamed El-Erian of PIMCO, a man who knows a bit about bonds, has called the S & P move "a timely warning".
The most fatuous comment so far on these events has come from one UK commentator (left nameless to protect the guilty) who suggests that a US ratings downgrade might not matter that much. After all, the "argument" goes, Japan lost its AAA rating a decade ago and currently borrows money at 1.25%. That's true, but it borrows at those rates from its own savings-obsessed people. Japan is not constantly rampaging around the world in a desperate hunt for new creditors, as the US is. Borrowing from abroad changes the whole complexion of the problem. Let's look at that in more detail.
There have always been plenty of economists who are prepared to argue that government borrowing is harmless because "we owe the money to ourselves". That's sometimes expressed in the "IOU = UOMe" identity, and if you recall your high school algebra, you can strike out the common factors on each side, which reduces the equation to the obviously true proposition, "I = Me".
So there's no problem, right? Well, that might have been the case at one time in Japan (or Italy, another country of savers), but even in those cases there are issues. For one thing, borrowing risks transferring wealth from the poor (who get taxed to pay the interest on the borrowings) to the rich (who get taxed, but also earn the interest on the bonds). For another, there's the intergenerational aspect: "I" am borrowing the money now, but the "Me" who's being counted on to pay it back may actually be Mini-Me i.e. my children and their children, who weren't consulted. You can make a case for this as long as "I" am borrowing to invest, but it's a lot harder to justify if "I" am just consuming the proceeds. And the case gets even tougher to make if there are just not enough Mini-me's in prospect to repay the debt, as a result of demographic trends. This is Japan's predicament now.
In the debt-happy USA, of course, the "IOU" equation stopped being relevant years ago. Americans owe money to everybody, including a lot of countries they'd really rather not be beholden to. It all works fine as long as the US dollar remains the preferred international reserve asset, because that means that foreign investors are willing to hold the dollar-denominated debt that the US spews out in order to finance its spending. However, there are signs that the appetite for USD assets may be approaching its limits. OPEC countries seem to be trying to move away from exclusively dollar-based pricing. Criticism of US profligacy and the tidal wave of dollars it creates is being heard even from notionally friendly countries like Australia and Brazil, who are afraid of another bout of asset price inflation.
There's no sign of a buyers' strike over US debt yet (although the US is certainly not able to borrow at 1.25% or anything like it), but the S & P rating action should serve as a warning that things could change, and if they do, the ramifications for the global financial system are terrifying. Whether this concentrates the minds of the White House and its array of opponents remains to be seen; it's just as likely to become another element in the endless high-decibel buck-passing and mudslinging that has supplanted fiscal debate in Washington.
Friday, 15 April 2011
What the NHS can learn from Bob Crow
Nobody remembers good forecasts; nobody forgets or forgives bad ones. I well remember one forecast that appeared in The Economist at the time of the privatisation of Britain's railways. The paper confidently opined that the occasionally malign influence of the railway unions would be a thing of the past; with the railway broken up into several separate companies, the unions would never again be able to hold the country to ransom by calling a national strike.
The flaw in this analysis was that the unions were never actually aiming to bring the country to a halt in the first place. They were aiming to improve their members' wages and working conditions. Strikes were just the means, and when there was only one employer (British Rail), they were just about the only means available. In econospeak, BR was a monopsonist, a sole buyer. If you were a train driver, there was nobody else you could work for. That gave BR a lot of bargaining power, which the unions could only combat by occasionally unleashing the strike threat.
As The Economist might have realised, replacing the monopsonist BR with a group of smaller companies did not weaken the unions' hand -- it strengthened it. It's true that there are fewer train strikes than there used to be, but that's because the unions now have a new bargaining chip. Drivers who are not satisfied with pay or conditions at one company can just go down the line to work for another. Any examination of union demands in railway pay disputes these days will show that demands for wage parity with workers at another company feature regularly, and the companies have little power to resist, so wages have been steadily ratcheted higher. It's the structure of the industry, just as much as the pugnacity of RMT leader Bob Crow and his ilk, that have resulted in London Tube train drivers earning upwards of £40,000 a year.
The experience of the railways casts serious doubt on the Government's assertion that decentralising control of the National Health Service budget to groups of local GPs will help to restrain costs. Goodness knows, the NHS is not much of a monopsonist anyway: data for the "primary care trusts" reveal that they pay suppliers wildly differening amounts for the same goods and services. (Last year's review of public sector waste by Sir Philp Green showed that this was an issue all across central government).
Any well-designed reform of the NHS -- which does not include the one currently under review -- should look to take much more advantage of its scale as a buyer, even if that implies more rather than less centralisation. It's very hard to see how groups of clinicians, with limited business experience and even less spare time, will be better at negotiating prices and terms with multinational drug companies than the NHS or the primary care trusts have been. Just ask Bob Crow.
The flaw in this analysis was that the unions were never actually aiming to bring the country to a halt in the first place. They were aiming to improve their members' wages and working conditions. Strikes were just the means, and when there was only one employer (British Rail), they were just about the only means available. In econospeak, BR was a monopsonist, a sole buyer. If you were a train driver, there was nobody else you could work for. That gave BR a lot of bargaining power, which the unions could only combat by occasionally unleashing the strike threat.
As The Economist might have realised, replacing the monopsonist BR with a group of smaller companies did not weaken the unions' hand -- it strengthened it. It's true that there are fewer train strikes than there used to be, but that's because the unions now have a new bargaining chip. Drivers who are not satisfied with pay or conditions at one company can just go down the line to work for another. Any examination of union demands in railway pay disputes these days will show that demands for wage parity with workers at another company feature regularly, and the companies have little power to resist, so wages have been steadily ratcheted higher. It's the structure of the industry, just as much as the pugnacity of RMT leader Bob Crow and his ilk, that have resulted in London Tube train drivers earning upwards of £40,000 a year.
The experience of the railways casts serious doubt on the Government's assertion that decentralising control of the National Health Service budget to groups of local GPs will help to restrain costs. Goodness knows, the NHS is not much of a monopsonist anyway: data for the "primary care trusts" reveal that they pay suppliers wildly differening amounts for the same goods and services. (Last year's review of public sector waste by Sir Philp Green showed that this was an issue all across central government).
Any well-designed reform of the NHS -- which does not include the one currently under review -- should look to take much more advantage of its scale as a buyer, even if that implies more rather than less centralisation. It's very hard to see how groups of clinicians, with limited business experience and even less spare time, will be better at negotiating prices and terms with multinational drug companies than the NHS or the primary care trusts have been. Just ask Bob Crow.
Tuesday, 12 April 2011
For this relief, much thanks
As a general rule, the Bank of England only makes rate changes in months when it also issues an updated inflation forecast. Since those forecasts are scheduled for February, May, August and November, markets have been focusing on the May meeting of the Monetary Policy Committee as the likeliest date for the start of a gentle tightening cycle.
Today's news that consumer inflation unexpectedly slowed in March is likely to give Bank Governor Mervyn King the ammunition to persuade his more gung-ho colleagues to delay any rate increase at least until the August meeting. CPI slipped to 4.0% from February's 4.4% (still twice the target rate, lest we forget); the old RPI measure slowed to 5.3% from 5.5%; and "core" CPI slowed to 3.2% from 3.4%. According to the ONS, the slowdown in CPI was mainly the result of falling food prices, with a bit of an assist from air fares. (This latter may well have something to do with the timing of Easter, which is as late as it can possibly be this year).
It may be no more than a temporary reprieve. Energy prices are still rising: the Sterling price of oil recently hit an all-time record, which tells you something about the performance of the pound over the past three years, given that we are $30 or more below the all-time high dollar price for crude. More broadly, factory gate prices continue to rise at an alarming rate. Either these will be passed on to consumers at some point, or margins will come under severe pressure. More optimistic commentaries on today's numbers suggest that it may be the latter, that supermarkets and others are losing pricing power as consumers respond to the squeeze on incomes. But there's an alternative view, as expressed here by Jeremy Warner on the Daily Telegraph website:
Regrettably, the sort of inflation Britain has today is not “demand-pull”, where an excess of demand on limited supply pulls prices up, but “cost-push”, where increased costs push prices higher. On the costs side of the ledger, there’s no let up, from high energy and commodity prices, to growing wage inflation in the big manufacturing centres of China and the rest of the developing world. The terms of trade have turned seriously against the UK, with higher prices cutting ever more deeply into our standard of living.
There's something quite nostalgic about that: the last time I read the terms "demand-pull" and "cost-push" must have been in the late 1960s. Still, he's not wrong, and as long as monetary policy remains wildly expansionary, there will be a persistent risk that those cost pressures will permeate the rest of the economy. Mervyn King and the rest of the MPC can't start to relax just yet.
Today's news that consumer inflation unexpectedly slowed in March is likely to give Bank Governor Mervyn King the ammunition to persuade his more gung-ho colleagues to delay any rate increase at least until the August meeting. CPI slipped to 4.0% from February's 4.4% (still twice the target rate, lest we forget); the old RPI measure slowed to 5.3% from 5.5%; and "core" CPI slowed to 3.2% from 3.4%. According to the ONS, the slowdown in CPI was mainly the result of falling food prices, with a bit of an assist from air fares. (This latter may well have something to do with the timing of Easter, which is as late as it can possibly be this year).
It may be no more than a temporary reprieve. Energy prices are still rising: the Sterling price of oil recently hit an all-time record, which tells you something about the performance of the pound over the past three years, given that we are $30 or more below the all-time high dollar price for crude. More broadly, factory gate prices continue to rise at an alarming rate. Either these will be passed on to consumers at some point, or margins will come under severe pressure. More optimistic commentaries on today's numbers suggest that it may be the latter, that supermarkets and others are losing pricing power as consumers respond to the squeeze on incomes. But there's an alternative view, as expressed here by Jeremy Warner on the Daily Telegraph website:
Regrettably, the sort of inflation Britain has today is not “demand-pull”, where an excess of demand on limited supply pulls prices up, but “cost-push”, where increased costs push prices higher. On the costs side of the ledger, there’s no let up, from high energy and commodity prices, to growing wage inflation in the big manufacturing centres of China and the rest of the developing world. The terms of trade have turned seriously against the UK, with higher prices cutting ever more deeply into our standard of living.
There's something quite nostalgic about that: the last time I read the terms "demand-pull" and "cost-push" must have been in the late 1960s. Still, he's not wrong, and as long as monetary policy remains wildly expansionary, there will be a persistent risk that those cost pressures will permeate the rest of the economy. Mervyn King and the rest of the MPC can't start to relax just yet.
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