Wednesday, April 1, 2009

Bank of England Chief Economist Warns 'Interest Rates Set To Soar'

In a stunning display of candor Spencer Dale, the Chief Economist for the Bank of England, has warned the British people that interest rates will rocket as the Bank of England battles to keep inflation under control.

As reported in the London Daily Express on March 28th, Spencer Dale told insurers the Bank would remain focused on inflation, regardless of the pain that it would cause millions of home owners as their mortgage payments soared.

Dale, a member of the Bank’s ­Monetary Policy Committee, which sets interest rates, said: “The committee adjusted monetary policy boldly and ­decisively on the way down in order to meet the inflation target. And let me assure you that, when the time comes, we will be prepared to respond with equal vigour on the way back up."

In a speech to the Association of British Insurers, Mr Dale stressed that the Bank of England’s priority had to be keeping inflation within the Government’s two per cent target.

Figures out this week revealed a surprise rise in the Consumer Prices Index from 3 to 3.2 per cent, with an increase in the cost of food and drink being blamed. While inflation is still expected to fall sharply as the recession takes its course, the CPI figures caught experts off guard.

There are growing fears across the UK that the Government’s decision to print more money – an action known as quantitative easing – combined with high levels of borrowing and spending are throwing things out of kilter.

But Dale insisted the economic slump was showing no sign of easing yet and warned that not all the actions taken by the authorities so far were having the desired affect. “So there may still be more to do.”

As predicted here last week, it means that England plans on continuing with the 'quantitative easing' policy of printing more money. More importantly it cleary plans to dealing with the consequences of printing massive amounts of money in a drastic and dramatic fashion when (and not 'if') inflation comes.

The article goes on to note that if the Bank of England feels it is losing control of inflation, "a sharp rise in the base rate is likely to be employed as a blunt instrument to encourage a slowdown."

Liberal Democrat Treasury spokesman Vince Cable said, “the danger of such aggressive interest rate cuts and the start of quantitative easing is high inflation further down the road. The Bank of England is right to warn that record low interest rates are not sustainable in the long term."

Indeed they are.

And while some UK financial experts, like Jonathan Davis, are quick to soften the Bank of England's warning by arguing that he does “not envisage them raising interest rates for quite a long time to come," even Davis was forced to admit that “in the long term we are going to have very high inflation and we could have 1970s-style inflation."

Which is exactly what we have been predicting on this blog for several months now. And while we may not receive such candor from our own Bank of Canada, make no mistake... the policies of Canada, America, Japan et al, to print massive amounts of money to 'stimulate' our economy are going to come with the same dramatic consequences being forcast by the Bank of England for the UK.

And those consequences are particularly ominous for the Village on the Edge of the Rainforest.

For if the Bank of England says they will remain focused on inflation - regardless of the pain that it would cause millions of home owners as their mortgage payments soared - can there be any doubt that the Bank of Canada will act any differently?

Not a chance, 22% mortgage rates, anyone?

It's coming - you can count on it. And remember, it only means a mere monthly payment of $11,9000 on your $650,000 mortgage.

Gosh... it's a great time to buy real estate, isn't it?



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