Economists acknowledge that we’re in a bit of a pickle at the moment. Growth is slowing and inflation is speeding up; a twin problem that makes the job of policymakers almost impossible.

The Bank of England’s Monetary Policy Committee (MPC) is supposed to keep inflation (the rising cost of the things we buy) at around 2-to-2.5 per cent. This year it will hit four per cent according to the Bank’s deputy.

Normally, the MPC would raise interest rates at this point to curb consumer spending and convince people to save, thereby dropping demand and taking some pressure off prices on the high street.

But a) inflation is coming from energy products and raw materials, which we all pretty much have to use one way or another, and b) economic growth is stumbling because of weak bank lending and falling house prices.

It means the Bank’s hands are tied. Does the MPC ardently stick to its remit of controlling inflation with higher rates, but in doing so throttle economic growth? It’s a pickle all right.

As a small business, what’s your tactic to beat the malaise? Batten down the hatches or go on the offensive? Or, like so many of us, keep on keeping on and hope it goes away quickly?

Whatever you’re plan spare a thought for the businesses of Zimbabwe, whose central bank has just released the first ever 100 billion dollar note. Official figures show inflation over there hit 2.2 million per cent in July.

Makes the Bank of England’s current quandary look like child’s play don’t it?  

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By Dan Matthews  on   Jul 22,2008

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Keywords

Bank of England    interest rates    inflation    economy   

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