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"he plans to provide more detail in his budget about where the spending axe will fall."

That`s really good of him.Really thoughtful.

Shame about the deteriorating balance sheet creating all this uncertainty,but no doubt his soothing words will make everything alright,eh Stephanie?

Btw,why has Merv the swerve not been sacked for his previous failures?

Hmm. The problem with quantative easing may be that others are tempted to adopt a similar policy.

I find the code hard to fathom. Has Merv now tumbled to the inconvenient truth that QE is inflationary? I hope he has.

We'll know next month when we discover whether QE has been wound up.

Meanwhile, what price 4 million unemployed and inflation at 6% at the end of 2010 and a Labour opposition in full cry blaming the Tories for the consequences of Labour's abject handling of the economy since Gordon forgot to be prudent?

Hi Stephanie,
Just quickly read the speech. On inflation he seems to be running up a red flag warning. The pass through effect, he says, of sterling depreciation is offsetting the downward force on inflation caused by spare capacity. He points to possibilty of higher energy prices and indirect taxes keeping inflation higher than maybe 3%. Only if monetary growth keeps under control would it return to trend- this is a big caveat in unprecented times of QE. I dont get the impression from his remarks that the inflation spike is "priced in" at all as you mentioned. The message is: I'm not complacent about inflation.

The main message he is giving is that we need to consume less as individuals and our government will need to stop its high consumption fuelled on debt. We need to reverse our trade deficit and stop relying on so-called "capital account" surpluses to hide our consumption "fix".

I agree.

You can ask people to accept zero wage increases when inflation is flatlined, but it isn't going to cut much ice once it picks up again and people see their wages buying them less in the shops. For years Mervyn King has underestimated the real level of inflation, for too long the real rises in the cost of living just have not been reflected in the official estimates. This, just as much as peoples high personal debt levels put us where we are now. We tend to forget that the banking crisis and the recession are two different things, connected maybe, but seperate. Mervyn King should have seen both things coming, but if he did he chose to ignore the signs and the warnings, and here he is telling households to have patience over the next few years as the price to them for his failings have to be repaid. My problem with Mr King is that he is addicted to low interest rates, cheap credit, and ignoring inflation, all the things that got us where we are today, so how are things going to change if he doesn't?

I'm not an expert, so forgive me, but at the moment Mr King is one of the few reported establishmnent voices providing a bit of financial "truth".

He may or may not be guilty as charged, but if your job dictated by your boss is to maintain the narrow CPI within a certain range, and your only weapon is to change interest rates, what else could he do?

At this point, and before we should be relying on our elected goverment, who govern this country on our behalf, to be telling us to tighten our belts, and watch out what's around the corner. But since there's only spin coming from them, we need somebody to start waving the red flag.

He may be guilty of keeping quiet in the past, but at least he's speaking now. If only the government was being honest and progressive, we'd all be in a better position for the future.

re At 07:31am on 20 Jan 2010, Henry Quimper wrote:
'Has Merv now tumbled to the inconvenient truth that QE is inflationary? I hope he has.'

QE is not inflationary per se, especially if accompanied with a collapsing velocity of circulation which is what we have seen in the UK. This is why monetarism did not work, either in the UK in the early 80s when Howe and Lawson lost control of the monetary aggregates or in the US under Volcker. Given that Prof. King is a distinguished monetary economist, we should at least give him credit for understanding the nuances of quantitative easing.

The biggest obstacle to sorting out our economy is the up and coming election. I believe that who ever wins the election they will end up following broadly similar pragmatic policies. Cameron may do cuts slightly quicker and deeper than Brown, but I doubt there will be not much in it.

The problem is neither side is doing anything now. Brown, for understandable electoral reasons; Cameron because he can't but won't say because of electoral reasons.

Mervyn King is an economic disaster zone - his education at Harvard, or his plain daftness, did not let him see that he was substantially contributing to the bubble economy of the noughties, and he is still doing the same thing now!

The only economically beneficial thing he can do is to resign (along with Nck Macpherson of the Treasury, The MPC and the entire FSA).

I note today a study which has found even after inflation that the necessities of life - namely a house over your head is now 4 times more pricey than it was in the 1950's. The Bank of England (along with politicians of all shared) are directly and unavoidably responsible for this situation and all of its absolutely predictable consequences (increased family breakdown, the restructuring of the Nation from a class balance in reproduction to favouring the poor, the less educated, the more innumerate and the more feckless. Mervyn King is the latest in a long list of economic monsters who have abrogated their responsibility for this! We must not let them escape.

I wrote this yesterday:

`The real economy is slowly sinking, there is no recovery other than Christmas shopping, the pound sterling has dropped in value making food and fuel more expensive, the consumer is cutting back, the government is so deep in debt it hasn't got a clue how to rectify its situation and would rather not anyway, the bond markets are looking askance at our level of debt and there is every prospect of a run on the pound.'

There are two problems:

1. The massive deficit which is starting to stink like a ripe farmyard midden. Even now when their budgets have not yet been cut back public authorities are using the excuse of the recession to cover their traditional reluctance to spend.

2. The man in the bunker under No.10. Given that the man in the bunker has only got residency until June we still have four months of denial to get through.

Problem No.2 is the road block to approaching problem No 1 in a rational and constructive manner. There will have to be reductions in public spending but do they have to hit the public services in a serious manner? If the issue is approached sensibly we can get through public spending cuts with a minimum of pain to everyone. But if the issue is delayed and we end up with a run on sterling then the cuts will have to be sudden, ruthless and lead to a slaughter of the public services.

I feel that many at senior levels in the Labour Party see this as the way to manage the issue but they are stymied at every turn by the man in the bunker and those who think they can profit personally by supporting him in his obvious mania of denial.

There is no choice but to approach the public deficit in a sensible way. This is also an opportunity to get the public services performing more productively. However, it will mean that the glad-handing, bumper budgetting, egotistical parading, control freakery, playing at being in charge which is what we had most from New Labour these part twelve years will have to end.

'' The two are indeed singing from the same hymn sheet. At least for now. It's just not the same hymn sheet as Gordon Brown. ''

Does anybody sing with G Brown. Anybody. Does anybody even have his hymn sheet.

There are widespread reports of private sector deals to squeeze wages. There is the odd report of a squeeze building in the public sector. Most cuts in the public sector have to come. Interest rates cannot be held where they are. Inflation is on the up.

The effects of a squeeze on income is not felt immediately. It is when the replacement of white and other household goods is driven by their malfunction and failure that the problems really surface. This is why the Social Fund is available for emergency loans to low income families, because a stressed income cannot cope with even small shocks. Incidentally most of these goods are imports. In a year or two from now pressures will build up. Things are still pointing the wrong way for comfort. It appears to be gradually being accepted that strong recovery is not going to gallop to the rescue.

Funny how the talk of green shoots has stopped and political parties are moving towards reeling in proposed electoral sweetners left right and centre.

When the situation filters through to the general public it is going to squeeze their head. It is one thing to be told things are going to be difficult for a short time, and another entirely to realise the environment will be around for a considerable time.

The most telling thing to me is the developement of 10 year comments. Lrd Mandelson has referred to 10 years for economic development, the Item Club has referred to a 10 year scenario. You cannot talk about a 10 years, it is meaningless because nobody can forecast that far sensibly. It is like the BBQ summer problem. Talking about 10 years is a tacit admisson there is no horizon. No horizon means the model is broke.

Far from wanting to get in at the next GE if I was in Browns shoes I would be praying somebody else had to sort the Which Blair Project. And Cameron seems equally detatched from reality, where does he get the idea you can only effectively teach GCSEs if you have a 2:1 or higher degree, or that a very small married couples tax break will keep families together when people desperate not to be married to one another can voluntarily pay substantial summs to lawyers to part. Or that now is the time to be elitist. He must have a vacuum in his mind, or perhaps it is that the problem is so big you have to invent smaller problems to be able to talk about anything.

Good that there is consensus between Darling and King.....but the funny thing is Brown is usually the one who turns out to be right.....we do not really need massive spending cuts just yet, we are only emerging from the slump.
And good news today, surely the big story of the day, that unemployment has started to come down again....



Onward-go!

Stephanie

I agree the inflation numbers are more newsworthy. Pretty much all economists, business people, commentators and the general public realise that the budget deficit has to be cut. The debate is about how, when and where. As you rightly point out it is beyond the Governor's pay grade to comment on the where. The Conservative Party want to cut now, but cannot as they do not govern, the Labour Party will not take any measures likely to be unpopular this close to a General Election.

The underlying assumption for the City and most businesses has been that inflation would remain within check for this year and into next, albeit allowing for an increase early this year as the VAT temporary reduction unwound. The VAT change will nudge up inflation for almost the whole of 2010. This week's inflation number has raised the possibility that inflation could rise to levels, which would force the Governor and MPC to take action on interest rates before the end of the current year. The exact timing of the QE impact on inflation is unknown, but this could well take effect before the end of 2010. Presumably there is a lag, but how long? The next Inflation Report will give some insight into the BoE's latest thinking on all the inflationary push and pull factors for the next year or so.

The inflation number also caused much excitement on the foreign exchange markets, with the Β£sterling rebounding from recent lows against major currencies yesterday.

It is virtually certain that whoever wins the general election this year will hold a budget shortly afterwards, where the budget deficit medicine will be dished out; soup kitchen style. King's statement was also a reiteration of the truism that belt tightening will be required all round for the next two years.

If Cameron is elected, although few if any details on the plans will be provided before the election, we may expect a Sir Geoffrey Howe 1980 style budget from him - massive public sector cuts and huge tax increases, interest rate rises. Remember the 1980 budget and 3 million unemployed? What about the riots that took place that summer? Unemployment did not reduce below 2 million until late 1997 - a price worth paying to keep wage inflation down, according to many in the Conservative Party. How many tax increases did the Conservative Party introduce after the 1992 election, when it had promised not to increase taxes at all? The current Conservative Party line repeatedly spun about "we do not know what state the finances are in" is just the precursor to a post election line "the state of the finances left by Labour is so much worse than we expected", to justify such a python-throttle like pip squeezing Sir Geoffrey Howe style budget.

Cameron and particularly Osborne should be challenged on their plans by opposition politicians and commentators alike. If they are so keen to cut spending now, as they have stated repeatedly, then they should set out exactly where the cuts will fall. If the Labour Party sets out its stall at the Budget, then the electorate will have a clear choice.

7. Duncan tells me that QE is not inflationary because Merv is a distinguished monetary economist. This does not feel like a logical proof.

The economics I learned back in the 60s was that inflation is caused by too much money chasing too few goods. We have just seen QE print masses of money and pump it into the economy. Not the odd few quid but mind blowing sums that those of us who deal in receiving their pension can scarcely comprehend.

Having printed the mass of money, we now are going to take the hit from the inevitable inflation. I would suggest that what has happened in Zimbabwe in recent times, and John Law's experience in Paris in the 1720s are better indicators of our potential fate than Merv's education.

12. At 10:08am on 20 Jan 2010, onward-ho wrote:
And good news today, surely the big story of the day, that unemployment has started to come down again....
-----------------------------------------
You seem to have ignored this part of the article you posted the link to:

"However, the improvement masked a rise in the number of people in the labour force who are neither working nor looking for work, with the inactivity rate rising to 21.2 per cent in the three months to November, the highest since the three months to August 2007.

The number of people who were economically inactive rose to 8.046 million, its highest since records began in 1971."

This may be good in terms of benefits not being paid but is a sad reflection on economic inertia.

Steph,

I thought King's speech was a direct contradiction of your previous blog, there was none of the complacency that you displayed. I hope you are not taking your line from Downing St.

Even Darling is whispering what is required, the reality is that Government cannot tax any more as the main contributors of tax in the UK will leave, the only option is spending cuts.

Where is that going to start? In the welfare budget that cushions, not only the poor but people like landlords that benefit from the generous rent allowances that are paid to large families by this government. The Treasury is going to have to guard its expenditure like everyone else will have to in the UK. No longer will we be able to afford to keep unemployed families with 10 children in "Kensington and Chelsea".

Some of the comments critisize King for his record, that is unfair. For the last 6 years he has been warning the Government that they are taking the wrong road, what has become abundantly clear to us all now is just how ignorant and intrasigent our PM was as Chancellor. The claim to be the best chancellor in the 20th century is no longer heard, history will judge his tenure in the Trasury very harshly as the man who took the Great out of Britain.

If King and Darling are singing from the same hymn sheet - good! Darling is showing true statemanship.

It appears we are reaching a tipping point when QE has to finish and action is needed on interest rates to avoid inflation rising too much in the next couple of years.

Equally the economy seems to be slowly emerging from recession and action is also needed on the deficit, which will deteriorate further as the lower tax take starts to bite this year. Only one man seems not to be noticing and he is too obsessed with saving his skin in the coming election to that of saving UK plc.

14. At 10:34am on 20 Jan 2010, Henry Quimper wrote:

7. Duncan tells me that QE is not inflationary because Merv is a distinguished monetary economist. This does not feel like a logical proof.

I agree. This increase in inflation may not be connected to QE, because as far as I can tell very little QE money has actually hit the street, but there will be QE induced inflation sooner or later imo..

There seems to be a concensus that the public sector debt can be handled, but no evidence whatever that it really can be.

I thought one of the pillars of the economy was the link between inflation and interest rates. Will this pillar have to be pulled down?
If the section of the population which relies on savings gets hit much harder there is going to be a huge problem with the elderly in our country.

Pretty much every dire outcome I have read about in this blog seems to be coming to pass.

#3. Henry Quimper wrote:

"Meanwhile, what price 4 million unemployed and inflation at 6% at the end of 2010 and a Labour opposition in full cry blaming the Tories for the consequences of Labour's abject handling of the economy since Gordon forgot to be prudent?"

I'd be willing to offer you odds of 1000/1 on that scenario.

Much more likely that inflation will be around 2.5% and unemployment somewhere between 2.5 and 2.6 million.

8 million economically inactive. at present i would need a 16 k per year job to match my present income from ppl, housing benifit and jsa.to work for less would be economic suicide sorry to you dole scrounger bashers out there but i would sooner be inactive than dead.

Fellow readers - surely we can think of some ideas that will cut public spending that will not lead to mass redundancies and / or a collapse in public services.

For a start - how about an immediate halt on the deluge of (frequently patronising) Government funded advertising? Many millions - can't think it would do any significant damage to the wider economy!

'If good people do nothing' applies to Muslims, bankers and politicians even the police are saying 'we've learned lessons from this **** so moving forward' with no reference to what they've done to change things.
Do we get to hear the information needed to make the right decisions? I don't think so. what is the current level of QE as a percentage of pounds in circulation, for example. The figures mean nothing without reference.
I sit here watching the politicians behave like school children and I can do nothing, my MP can do nothing, (he's told me that the government don't listen.) What can I do to change things the system not just the party is wrong.
Bring back Oliver Cromwell. We need to kick this way of doing things into touch, and work together and not let the biggest bully or the smooth talkers run things.

#13 fleche_dor Any analysis of Labour and Tory policies simply reveals identical substantive policies and hence confirmation that the electorate has no choice at all.

What purpose does a micro analysis of 2 identical "choices" serve? None whatsoever is the answer. Oh how they must laugh in the corridors of power.

Your real choice is simple - rise up or get crushed! No will will rise up and conclusive proof will be provided that turkeys really do vote for Christmas.

Because our national income has been reduced by the worldwide bank crisis, we'll all have to change our financial plans. Instead of growing income between 2008 and 2010 by 5-6% our economy shrunk by 6% leaving us both with a large cash hole and spare capacity of around ten percent. Almost everyone agrees with those facts - including the Labour Government.
The disagreements are about size and timing of deficit reductions, not whether they're necessary. And that revolves around the impact of those reductions on national income and tax revenues.
Unlike firms and households that correctly ignore the consequences to our nation of their own drastic cuts, our country can't over-look lost income that would be caused by a further contraction: we MUST ensure money supply doesn't drop and drag down output whilst we're repairing the cash hole. If we do ignore those consequences, our decline will be much deeper and the cash hole bigger.
The rival ways of achieving a deficit reduction are about whether we can afford the approach applied in 1979-82 of slash and burn (which cut national income by 6% and created ten more years of stagnation), or a less steep slow-down that also restores the high growth in output of the last decade.
The Tory policy of slash and burn was tried in the 1980s with disastrous results for our national prosperity and unemployed families. Fortunately, we also own a giant share of the British Banking industry that we're already quietly selling off to reduce the fiscal deficit. A less drastic deficit reduction programme is made available by those shareholdings and is undoubtedly better.

I have a couple of points about the inflation rate. The VAT rise was not reflected in the figures released yesterday. It seems the retailers used the rise as a useful marketing tactic and a boost to their profits during the run up to Xmas, so it's likely that most of the price rise will already have been factored into the prices during December. The weakness of sterling is a little more puzzling. The pound was trading around 15 cents higher at the end of December 2009 against December 2008. The pound had fallen significantly at the end of 2008, so I suppose the argument must go that it takes time for the fall to filter through. The rise in oil during the second part of 2009 will obviously have played a big part in the rise, but what was the impact of QE?

I was always of the opinion that QE would have a major impact on inflation and confidently forecast double digit inflation rates in the period 2012 onwards. The easiest (or least painful) way to get the British economy back onto an even keel is via a major fall in the value of the pound and high inflation. This will effectively reduce personal debts, but will be a painful experience for anyone with cash investments. I don't think QE has had too much impact on inflation so far, but if you pump 200 Billion into the system it is only a matter of time before it does.

The QE programme hasn't worked with the money helping finance and public spending. Although financial stability is a prerequisite to a strong economy it's rather annoying to find how much money the big investment banks have made as a result of QE. Much of the money that goes into public spending is wasted in bureaucracy.

#20 rbs-temp says he would give me 1000/1. I asked for odds on 4 million unemployed and inflation at 6%

He said 2.5 million unemployed and inflation at about 2.5%. Time will tell. I have no wish to actually put money down, but his odds seem generous.

The true level of unemployment is probably nearing 4 million now. There are many unemployed who are unable get jobs, but aren't in the statistics. I am one such.

I would be staggered if we had inflation as low as 2.5% at the year end. There are too many twists of the knife to come. The next hike in fuel duty has to work its way through the system and what will petrol go up to in the summer as we lift out of recession and the price of crude oil rises?

Incidentally, to be clear, I am talking RPI inflation. CPI inflation, which ignores interest rates will probably only get to 4.5%.

#26. Andrew Marshall wrote:

"The easiest (or least painful) way to get the British economy back onto an even keel is via a major fall in the value of the pound and high inflation. This will effectively reduce personal debts, but will be a painful experience for anyone with cash investments."

Yes, but (and you knew there would be a 'but' didn't you!) The effect of reducing the propensity to save and the value of savings is to further cripple the economy and make us more and more likely to have yet another hugely damaging property bubble - the consequence of which will push the price of land up still higher and make UK business still less internationally competitive so your 'easiest solution' is not a 'solution' at all.

Personal debts will have to be repaid and at a very high price I am afraid as the borrowing/savings position is so far out of balance as to make inflation as a solution simply no longer work as effectively as it has in the past. It will not have escaped your notice that interest rates are now zero to negative in absolute terms let alone real terms(after inflation) the consequence of this is that there is no wiggle room left and the inflation solution will produce a very rapid rise in interest rates no matter what the Bank of England says - this is mainly because by reducing rates to zero the Bank has entirely lost control of rates on the high street (see the 4-5% savings rates being paid to larger savers, zero to small savers, bond yields of 4+% and higher equity yields and the 4% mortgage rates.) This is our biggest problem and it is not on the horizon - it is the hole in which we are still digging.

I agree that QE hasn't worked by any public definition of 'worked' - although I'm quite sure that the criteria used to decide if it has worked or not are nothing to do with the real economy but just the lack of a collapse of any major bank.

Although I despise the man (Mervyn King) for his actions and inactions he sometimes talks the right talk but he (almost) never does what he talks about. E.G. 'Banks too big to fail' at the Mansion House a year or so back, but absolutely nothing has been done about the problem, indeed it has got worse. Hypocrite or charlatan seems to fit him quite well! As well as demonstrating a complete absence of integrity.

As all economists know, when you draw a graph you must choose the line of best fit

Really I'd like to know how the ideas expressed in this blog actually contradict with what the governor is saying in a numerical or graphical format

Please show us the graph with the margins of error that are built in to both

Please show us all the compounding factors that would come into play with each of the scenarios outlined

#7. Duncan:

"'Has Merv now tumbled to the inconvenient truth that QE is inflationary? I hope he has.'

QE is not inflationary per se, especially if accompanied with a collapsing velocity of circulation which is what we have seen in the UK."

True, but thats only one side of the equation - the other is prices and economic activity. It would be highly unlikely that movements on one side would cancel each other out leaving no effect on the other side - especially as velocity tends to be the least volatile number.

So rising prices are an indication that the rise in money hasn't been soaked up by all this spare capacity thats supposed to be around.
And that doesn't include the asset bubble in housing and shares that has been discussed at length on this & Peston's blog.

Having pumped in the money Merv is now saying, wooah we need to slow down, but [please not too fast. In otherwise he's softening us up for interest rises, already priced into the rise of sterling against the euro.

#20 rbs_temp Words are cheap (yours especially). You already have 8 million people of working age who are "economically inactive" This means that they are unemployed simply because it cannot mean anything else.

But hey, why let facts stand in the way of delusional thinking?

#22. HantsDave wrote:

"...surely we can think of some ideas that will cut public spending that will not lead to mass redundancies and / or a collapse in public services."

Yup... the one used in the thirties - across the board pay cuts for all public sector workers. We know it works. It can be implemented and I am afraid, one way or other, it will be implemented. Inflation cannot be engineered to rise sufficiently rapidly for just holding down pay increases I am very much afraid the pay cuts will be required and be unavoidable. (And for equity pay cuts in the private sector too!) 10 to 15 percent perhaps.

Hi All

Following a link on this blog yesterday I have taken a look at notayesmanseconomics. It seems he was expecting a rise in inflation but not by quite as much as it turned out. He also has a lot of concerns over Mervyn King's speech last night as regards his view on future inflation and likely policy responses.Should the economy improve how will the Bank of England respond? It seems likely that it would act too late...

If you're a reader of these types of blogs, you've got a very difficult dilemma coming up: who to vote for in the next GE...

The catch 22 is that only the goverment can get the country out of the hole. Individually we can't do it. The only power we have is with the ballot box.
But the polictian are corrupt and they lie to us about their real abilities and plans. Our 5 year "jolly" system of power and the adversarial nature of Parliament means that we have no coherent business plan for the country and realistically 95% of the voting public are too poorly educated / and or ignorant to understand what the real problems are. They will vote for whoever the Sun / Mirror / Mail / Express says they should.

Heck I'm a degree qualified engineer, but even I didn't really realise what was happening till it all went wrong. I guess I didn't want to: that was what the government was for, to look after the countrys best long term interests -wasn't it?

So to get the popular vote, our politicians will lie to the public about what is really going to have to happen. But we want something to happen, so we will try and interpret the lies to see which Party is likely to make the best job.

What a horrid, insane proposition.

Even if there was an honest integral policitian out there, speaking the truth will get you fired.

You reap what you sow...

Just rememember for the young unimployed under 18's are not counted!

*30. At 11:45am on 20 Jan 2010, MisterGC wrote:

Oh, I quite agree that the Bank has a very difficult high wire act to perform in withdrawing the easing from the system as the velocity starts to pick up again, but without QE we would have had a stomach-churning drop in economic activity (even with, as you say, no one-for-one trade off between both sides of the MV = PT identity). While I am reluctant to include links to websites that i can't verify, I thought I'd post the following, largely for Henry Quimper's benefit, as it explains it all reasonably clearly. The Bank will need to shrink its balance sheet at some point and this will inevitably mean a rise in interest rates from these 300+ year lows.



I am still smiling at Henry's breathtaking elision of my post! Thank God monetary theory has moved on from the 1960s.

12 onward-ho

A reduction of 7,000 in the 2.46 million unemployment count does not a summer make.

I would expect these 7,000 to be in the building trade as part-completed sites which were closed down 18 months ago are now being recommissioned for completion. Whilst I will not mock anyone's job as it is valuable to them but this is due more to a reflation of the old housing bubble than any new value creation.

Furthermore there is no indication yet that this is in any way a trend. it would be nice if it was.

However, two new firms have appeared on a mainly empty industrial estate near here. Both small units, both service industries. It is a positive sign but both are engaged in importing.

Are we pumping up the bubble again so we can pretend it is growth!

Onward-ho wrote 'And good news today, surely the big story of the day, that unemployment has started to come down again....'

I cannot agree with much of this statement. For me, economic measures in the UK hide too much bad news - we should just consider employed as the measure of success not unemployed. I'm a big believer that stats should simply relate to the whole population that are of working age, on a simple pie it would show for example: 1) employed full time, 2) employed part time (sub setted into choices, eg carer, parent, vocational study) 3) student 4) unemployed (sub set long-term, short-term) 5 others) eg full time carer, in prison, ill, etc. My targets would be to increase firstly full time employment & secondly part time & thirdly students.

For both full & part time segments we can break down into public, banking/finance, manufacturing, rural/agricultural & service.

In my book we should encourage as many people as possible into work so we've got to make it more worthwhile to work even for those on a low income, i.e. increase the bottom tax level to say Β£10-12K (0% below that level), free child care to those on low incomes & remove some of the luxury items of people on benefits (e.g. sky tv, broadband).

For students we could target growth in students studying say engineering / science / agriculture / renewable energy / chemistry / medical sciences & reduce say library studies / politics.

Additionally for those interested my thoughts on reducing the UK's level of debt would not be job cuts but would involve initially:

a)procurement budgets - having worked in manufacturing, public sector & service sector it is clear that the public sector pays more for things than the private sector from products & consumables through to building/service contracts & 'networking'. For example computer monitors Β£100 private rising to nearly ten fold in the public sector (often with only a sticker over the manufacturer's logo). The other procurement budget would be the goods that people on certain benefits get they have to be appropriate to the budget available - fair enough furnish houses& pay for fuel, give food tokens, clothing allowances, help with education but not designer clothes, designer prams & expensive furniture.

Blimey, now I feel like I've had a real right wing rant & yet I've only ever voted left to middle. Many apologies to those rightly claiming benefits & struggling with everyday life & hats off to all those on low incomes, especially in healthcare & education.

Average earnings growth is now 2% lower than the CPI - lovely.

Merv's comments on inflation seem to me to be him saying don't expect the MPC to raise interest rates anytime soon.

A drop of 7000 in unemployment figures means nothing - the figures have been cooked for so long now they have no value other than to indicate how well the government wants us to think it's doing.

When we look at people who are not working full-time there are a number of reasons why that might be. Some will be in part-time work, or not working at all, because they cannot find full-time work. Some will be in part-time work, or not working at all, because they have chosen that route. Of those that have chosen less than full-time work the reasons break down further - some can't be bothered because they do just fine on benefits, some are taking a break from working, some are looking after relatives (including parents with small children), some work part-time because it fits in with their lifestyle decisions.

But in measuring unemployment the figures are also largely meaningless without considering underemployment. A mechanical engineering graduate flipping burgers because it's the only job they can find might not technically be unemployed but they clearly aren't in a job that's suited to their qualifications. But the minute they don their uniform they disappear from the statistics.

So how to fix it? Firstly, benefits need to be slashed. We need to target money to those that need it (pensioners, the genuinely disabled, and those out of the workforce who have previously worked). We need to make it very clear that living on benefits and choosing not to work is not a valid lifestyle decision to make. We can start by taking such people out of their fully-funded houses and putting them in hall-of-residence style accommodation. It is clearly absurd for working people to pay taxes to allow the non-working to live in superior accommodation.

If the children of the workshy end up living 2 or 3 to a bedroom, perhaps it will encourage them to work for a living to provide something better for their children. As it stands the system teaches them that if they don't bother either they'll get given a house big enough for everybody to be comfortable - a house they would struggle to fund through working for it.

The social security budget currently works out at the equivalent of Β£60/week for every man, woman and child in the country. We'd be better off just giving every adult Β£60/week, with more for pensioners and the genuinely disabled. If people wanted any more than that and aren't disabled, let them work for it.

I'm waiting to see how long it takes before QE blows up on us. Whether we define inflation as an increase in the money supply or the result of to much money chasing too few goods, pumping billions into the supply will inevitably result in prices rising at some point. The only question is whether it will be contained or allowed to turn into yet another asset price bubble. Since dot-bomb stocks no longer glitter, and property has burned a lot of people, one has to wonder what the next bubble might be.

To metallicinglewood (#21) - for me you sound exactly the type or person that the UK should want going back to work but as you rightly point out it has got to be worthwhile & not result in a loss of wealth/income

Unfortunately when I became unemployed I had just sold my house & was renting so had to use my savings, I now need a 25% deposit which I no longer have, I'd have been better not selling!

#39 Duncan

Thanks for the link - interesting graphs, good illustration of the counter of velocity - however I always feel a little concerned when I see a graph moving off trend as the 12 month total growth in M4 seems to be. As I'm very sure you appreciate none of the four variables are really independent, and cause and effect are very hard to predict. So sudden changes (especially ones driven by policy and not underlying changes) can give nasty suprises...

I agree that a sudden collapse in activity would have been very very unpleasant - I guess my concern is whether its been avoided or delayed. As far too much of our activity was (and is) being paid for by debt, its going to have fall eventualy - which comes back to the high wire act of managing the process so we can pay down some of that debt and get back to real growth.

From that point of view a rise in retail inflation at this point could be good thing as it will enable the bank to raise base rates. Thereby strengthening the pound and hopefully deflating the housing bubble a bit - avoiding a potential precipice. Without retail inflation those concerns would not be enough for the committee to raise rates (under its present rules). Which I suppose sort of comes back to Mervs point about the instruments under his control being too narrow.

Unemployment stats

1st 6 months are not means tested. Then means testing kicks in, and cash savings or share ownership disqualify many from claiming any cash benefit so they drop out, well until the saving and shares are cashed in and spent and drop below the threshold. Some also find the amount paid out via JSA and the prescriptive demands for applying for jobs that do not exist and undergoing training for being unemployed - not just anybody can be unemployed these days - that they drop out and try and find odd jobs here and there if they can or rely on the spouse. All well and good but they are still not in full employment and are seeking work and short of money. But never let the 'facts' spoil the story. Depending what story you want simply pick your facts.

38 d into e

There are few problems with your view of the world.

Many low income earners claim tax credits so they never see the income tax burden you imagine they do. The bottom 20 percent pay next to no income tax.

Why should any consumer have their purchases removed when they continue to pay for them because they are claiming a form of tax relief. When working the average person pays 46 percent of income in direct and indirect taxation in this country. Not all unemployed fall from low income jobs. And heavens to murgatroyd, any assets the unemployed should have should be immediately removed upon becoming unemployed it would appear from your argument.

Perhaps you would like to ask why a single JSA claimant recieves little more than a half a single pensioners credit yet pensioners claim they have great difficulty in living on their income and this is generally accepted as being the case, and pensioners additionally also recieve a winter fuel allowance on top.

The problem at the bottom of the stack for people is the decline of availability of reasonably paid and secure work, this is directly related to the failure of the economy due to government policy over decades. But far easier to blame those at the bottom than look elsewhere perhaps.

The growth in the number of students in this country is directly related to the lack of work driving people to study in the hope that things may be better when they graduate. More graduates does not necessarily mean more jobs, that is an illusion. What is far more noticeable is the failure of industry to sponsor and support the trained and educated output that industry says it needs. If industry needs it then industry should contribute far more. But unsurprisingly much of industry has walked away from the problem, yet beefs whenever the mood takes it, usually on an upswing, and then bullies to ship immigrants in.

"34. At 12:13pm on 20 Jan 2010, Crookwood wrote:

Even if there was an honest integral policitian out there, speaking the truth will get you fired."

Ron Paul, Republican Congressman for Texas talks a lot of sense. He ran for President twice and seems to be getting more and more media coverage as his comments since the 1980s on US monetary & foreign policy now appear prophetic rather than laughable as first thought.

www.ronpaul.com

31 armagediontimes and 37 stanilic
Today's unemployment figures are not that surprising - particularly if you've been watching the trend in employment (not un-employment). They reflect what's actually happening in the private sector. It's what some of us who run SME's have been banging on about for ages.
1/ We did most of our staff cutting in 2008 and early 2009. We have done all sorts of deals to keep our remaining staff in work. Our turnover has dropped 33% in 2 years, but has now stabilised. We stopped reducing headcount - non-replacements etc - 4 months ago. I expect (for industry specific reasons) our turnover to grow 10% in 2010, but 0% in 2011 and another 10% in 2012 (Olympics). I expect to take on the odd member of staff in April and May. Depends on the World Cup.
2/ The public sector hasn't yet been touched (up 90,000!!!) and can't be in 2010. That's because (as Stepanie indicates above) it now requires 6 months notice to be served on the relevant parties -ie the unions - before compulsory redundacy notices can be issued. Failure to comply by larger scale employers means automatic unfair dismissal. Expect a lot of smoke and mirrors after the election, but that's what it will be, lots of "freezes", reductions in posts, but no reduction in the number employed (except maybe non-replacement - a lot of civil servants retire every year!) until 2011.

So what's the likely effect of the above? Higher employment than forecast (and they've already got it wrong by 450,00) all year, higher house prices than people will expect and a significantly higher tax take than currently predicted. Inflation - up of course, but cpi no higher than 3.6 and averaging just less than that over the year. House prices, particularly in the south, will outsrip inflation by at least 3%.
And before anybody blasts me for being an ignorant fool and a dupe - I don't think the Government's unemployment figures have any basis in reality either. They are significant only because they demonstrate a relative movement (or lack of it) that is moderately encouraging, if only for the short term. I think December's lies and dodgy stats, will be on the same basis as November's dodgy stats and lies.

That short term encouragement will dissapear if the "Time to Pay" iniative is not allowed to continue to run thro the year. For many SME's it's kept them out of the non-cooperative claws of their banks. I have to say that HMC&R are starting to get increasingly twitchy on continually having to tolerate spreading over more than one tax quarter, but are still generally unwilling to sink a business for late payment.
That's only 2010. 2011 looks like a different kettle of fish. I'ts likely to be a nightmare if no remedial action is taken to cushion the effects of widespread public sector redundancies. If that happens. Refer to the relevant "Yes Minister" on how to avoid redundancy in the Civil Service.
TM StH

INVEST I SAY INVEST.

BUT (see it's not only JFH!), invest in companies that have good long term prospects - probably in 'green' engineering and other hi-tech operations.

In the past, the limited amount of government investment in such operations have been undermined by their propensity to sell-out to overseas companies and watch the ideas and productive capacity disappear off-shore. Therefore we need to find a mechanism whereby the penalty for selling-out is too high to make it a quick fix for the 'owners'.

Perhaps this is another way of slowly reducing some of our true level of unemployment.

Riverside

I'm not blaming those on low incomes at all - my main beef is that it has to be worthwhile their working. As one blogger mentions a minimum salary of Β£16K is required to get them off benefits & as tax & inflation increase this will only go up, if jobs exist then it should be worthwhile to take them.

Totally agree with the need for companies to offer positions through retraining & would happily see my taxes going towards that, as well as to carers, supplementing the income of people taking on part time or voluntary roles & people who have been unfortunate enough to lose their jobs. I do not feel we are to far apart in our thoughts to be fair! Ref students I'm a big believer in funding education but it needs to be targeted to the future strategy of UK industry.

41. after 30 years in gainfull employment with very few complaints i certainly hope i will get back into work and have no doubt i will.the point i was trying to get across is it HAS to be worthwhile.wages in this country have been kept low by the influx of cheap labour from abroad and we are now paying the price. you cannot survive on part time work paying minimum wage yet that is all many people are having to settle for.

Wow!...has anyone else noticed the upsurge in the pro-banking lobby on this blogsite?...the leeches must be getting a tad worried!

We in the west (well USA & UK) have made a Faustian pact with the Far Eastern savers, they provided Bulk savings to the big banks at cheap interest rates with their governments connivance until the credit crunch arrived. We went and consumed, until we couldn't borrow any more, then they suddenly turned off the taps.
Also our gov't in their wisdom borrowed on our behalf until their credit rating was also in danger of being downgraded and gilts yields are rising.

This is the problem with handing over your destiny to countries which may have a hidden agenda.(Don't forget the opium wars, Boxer rebellion etc - History sometimes creates a long term collective memory in nations, witness the Anglo / French animosity which has lasted since 1066). School books overseas don't always tell the 'truth' with the spin that you may like.

When countries such as China, own foreign cuurnecies in such huge volumes, they could if they wished (at some expense) create financial havoc and economic collapse through currency 'dumping'. Why is no-one in power in the UK seemingly worried about this? It rather restricts our foreign policy.

Meanwhile back in Blighty it has just dawned on the Building societies (who can no longer borrow on the money markets cheaply) that home loans cannot be dished out, unless there are UK savers willing to save in the UK. They are having to pay better interest rates.

Unfortunately the word prudence has got a bad name now thanks to Gordon Brown, you would have thought the son of a Scottish minister would not have been such a spendthrift. Unfortunately he has done his damage, sold our Gold at rubbish price destroyed our pensions with the abolition of ACT relief etc.

The Quakers with their financial honesty and straightforward financial dealings have a thing or two to teach the politicians in power. What we need to do is look forward, with new, really prudent policies.

From now on how about giving a real message to savers that they should not be penalized for saving by being charged income tax on their savings. That would be a real incentive for people to change their spendthrift ways. The Gov't should make the BIG statement even if it was just for a period of 10 Years.

It would also increase efficiency, people would no longer have to register for ISA's and nominee accounts and have to pay charges for financial firms to rip us off for running pension schemes.

[My opinion is that it doesn't is just because the gov't is scared in losing a few pounds tax revenue and is locked in a trap of vested interest with the financial service companies.] It is so inefficient and so prone to regulatory backscratching, the financial companies charge us in Britain 3 times the commision that American consumers pay.


Real financial prudence should be taught at school, my grandfather was a bank manager from 1938 through to 1963 having worked up through the system. You could get a loan but not for consumer spending or holidays. Saving was encouraged. Local businesses and families benefitted, and there were surprisingly few defaults. All before the financial services industries were deregulated.

We need to become self sufficient in providing finance for business investment, home mortgages, government borrowing, government investment, etc without having to use complicated expensive tax free wrappers with limited effectiveness; we can no longer expect to rely on johnnie foreigner to supply bulk savings for us.