Monday 15 March 2010

BoE 2.0?


No the Raven is not suggesting we introduce another version of the BoE, however today he has been reading quite a bit of commentary that questions whether 2% is a sensible target for the BoE to aim at for inflation.

Some pundits suggest the government would choose to change the inflation target; reducing the need for short term interest rates to rise in response to the UK's rather persistant inflation. Such a change in the perception of what would be acceptable/desirable/legislative target inflation would have to effect current long term bond yields. Obviously good for the Raven's bearish bet on UK gilts.

Great, but rather unlikely and certainley a long time away even if it were to occur.
The Raven has attached a chart of approx where a classic taylor rule and a simple 10yr rates + output gap against BoE base rate. There are some interesting features, namely how much higher BoE rates were than that suggested by a Taylor rule or a modified Taylor rule in the early 90s. Perhaps this was due to the political desire to support the GBP against the DMark, which the UK hasn't attempted to do this time around, and perhaps also explains some of the facets of this recession that have puzzled the Raven.

UNITE continue to astound the Raven in their ostrich like behaviour, he's pretty surprised at how little critism they've had to face in the media, given their funding of the Labour party, given the fact their leaders seem to get safe seats, given that they want to strike when their members are the best paid and have the best working conditions in the industry at a firm that is loss making you'd think they would be capable of realizing they are trying to protect an unsustainable position, but apparently not!?

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