Tony Ward's Blog
Tony Ward, Friday, 25 March 2011
Tony Ward is chief executive of Home Funding
Delivering a budget of any substance when you have no money in the coffers is tricky to say the least. Therefore it is not surprising that, in my view, the budget was somewhat a damp squib.
Balanced, politically astute and certainly some headline grabbing initiatives but in reality nothing to help get the market back on track - something the Government recognise themselves given that the OBR has downgraded growth assumptions again from 2.1% to 1.7% this year.
So after the budget, what next? Interest rates are certainly something to watch with care. The inflation target of 2% was reconfirmed Wednesday. Whilst recently the majority of MPC members voted for no change, two voted for a 0.25% rise and one, arch hawk Andrew Sentence, went for 0.5% increase.
Whilst there are those economists who say that putting rates up will unquestionably serve to reduce inflation, I would like to declare myself to be, in their view, an economic illiterate by saying that I don't agree with them.
Why? Well I can see a risk of higher rates causing inflation to rise by increasing costs - remember 'cost push' inflation? How will putting rates up in the UK head off inflation which has been caused by tax rises, higher energy and commodity costs?
I have to accept that in the case of inflation triggered by a weak pound, higher rates will help by making the UK a more attractive home for foreign investment chasing higher returns but at what cost if that causes the economy to stumble further and economic activity to reduce yet again?
Just how many times can the Government reduce their growth forecast I wonder?
