Economic policy makers in the UK seem to be choosing among bad options.
Today, the pound dropped and gilts rose on an announcement that the Bank of England has no intention of raising interest rates in the near future.
"Sterling depreciated against all of its 16 most-actively traded peers. The central bank hasn’t laid the ground for an interest-rate increase, King told reporters in London today following the release of the quarterly inflation report. Inflation in the U.K. may peak at about 4.4 percent this year before reaching the central bank’s 2 percent target by the middle of 2012, the report said."
That 4.4 percent inflation rate is now more than double the stated inflation target at the bank of England.
Bloomberg goes on to quote Neil Mellor, a currency strategist at BNY Mellon:
"'People are clipping away their expectations for higher rates,' said Mellor. "You’ve got to listen to King. The market has focused too much on the inflation figures and too little on what Mervyn King has been saying."
And what King has been saying implies that turning off the spigots now could be absolutely disastrous.
It's enough to make you wonder about the efficacy of the policy options now on the table in the UK—and about the consequences for the real economy.
As Tyler Durden at ZeroHedge drily observed the morning: "Surging inflation? Check. Negative GDP growth? Check. Increasing unemployment? Check. Dropping wages? Check. Looks like we have a stagflation bingo."
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