February 11, 2009

Britain will skirt deflation, BOE says

The Bank of England's quarterly Inflation Report said Britain would barely escape a deflationary cycle through 2012.

The bank said inflation would hover just above zero percent through 2012, The Times of London reported Wednesday.

The bank also said recession would remain in place through most of 2009 with the gross domestic product plunging in the summer to minus 4 percent. In introducing the report, bank Gov. Mervyn King said the country was now in a deep recession, The Times said.

The bank lowered its lending rate to 1 percent this month, but said it would take further steps if necessary to keep inflation near the target rate of 2 percent.

If reductions in official interest rates do not prove sufficient to meet the inflation target, policymakers still have other options available to them to stimulate the economy, the report said.

Keeping an eye on inflation was commendable, said economist George Magnus at UBS. But I fear they and the Treasury are tinkering around the edges of the problem.

Magnus said, The heart of the problem is income among households and cash flow among companies.