Talking yourself into a recession
January 23, 2008 by Jake Anders · 3 Comments
There are clear problems with many economies around the world as a result of the credit crunch, and it has come at a bad time - just as inflationary pressure is beginning to pick up. However, a large element of economic growth is consumer confidence. I can’t help feeling that at the moment some major players in the economic world are doing an awful lot to undermine this confidence.
For example, George Soros’ comment that it will be very difficult to avoid recessions in the UK and the US, here, seems rather exaggerated in the case of the UK (I think he is probably just saying what has almost already happened in the US). However, the more comments we hear like this, the more likely that recession will in fact happen - a self-fulfilling prophesy.
I’m also surprised at how few people thought the previous Bank of England decision on interest rates would clearly be to keep rates on hold. While there are signs of a slowdown, the MPC are only interested in this as far as it affects inflation. With far more direct upside inflation risks, such as increasing oil prices, inflation could have become a major issue had the Monetary Policy Committee not held its nerve.
The next interest rate decision is more difficult to call, but I don’t think an interest rate cut is quite the forgone conclusion many analysts would have up believe.
