The Bank of England could abandon its inflation target, report says

There is a danger the Bank of England (BOE) will abandon its inflation target in this parliament, the Financial Times reports. Today’s report by the top economist at the Treasury (Juliette Kellow), the BIRMINGHAM…

The Bank of England could abandon its inflation target, report says

There is a danger the Bank of England (BOE) will abandon its inflation target in this parliament, the

Financial Times reports.

Today’s report by the top economist at the Treasury (Juliette Kellow), the

BIRMINGHAM Business Post said in a headline.

UK public finances have grown “stubbornly” in recent years, the BIS

referendum tracker

said in a report in the Sunday Telegraph.

That means the balance of risks to the three-point inflation target set by the BOE is tilted to the upside, said Professor

Kellow.

She has written that the population is now ageing faster than is

anticipated, which is adding to the government’s costs. Also, the population is in “a state of concern” with long-term health, education and skills issues, and “well over 40 per cent” of the NHS workforce being aged 45 or older.

An ageing population – which would decrease work-age households relative to those without children – will add to the expenditure on the Government’s welfare welfare spending, which has been at record levels and threatens to grow much further, she writes.

There is a risk that the cost of debt servicing will also rise in the

scheduled 2020 tax year by another 4 percentage points, and by 1 percentage point in

2021.

The risk is that those extra extra costs will lead the BOE to stop

aiming for a three-percent inflation target altogether,

She is saying that the increase in government spending could push UK inflation above 5 per cent this year, and possibly push it above 6 per cent.

This time a year ago she had written that four percentage points more interest cost repayment is forecast than five percentage points.

She now says the additional three percentage points is about to arrive, and that this is

a “rational forecast”.

So the risk is more than three percentage points, and could blow a hole in the government’s finances, if expectations are wrong, Kellow argues.

The main points of her report are that the Government’s own website suggests that its real debt is 50 per cent higher than the Office for Budget Responsibility suggests it is, and that the basis of the Government’s welfare budget is in doubt as to its sustainability.

The risk is that the average pensioner has to pay more for

HEALTHY PEOPLE using health services, says Kellow.

One reason for the deficit could be that the BOE is focussing on more internal changes and developing other strategies for the recovery than has ever been done before, she says.

One reason that the economy grew last year was that it was helped by business and consumer spending the previous year as previous cuts were withdrawn, she says.

A report by research group Nicodemus found that tax revenues from capital gains increased by 15.2 percent over the past three years, from €12.9 billion in 2013 to €14.3 billion in 2015.

The earnings of dividend-payers also rose by 6.4 percent, or

€2.9 billion, from 2013 to 2015.

The size of the household savings ratio increased too, from 6.5 percent in 2013 to 8.3 percent in 2015.

The average saving rate in the years after the financial crisis was 2.2 percent.

The coming general election could hand a markedly larger boost to economic growth in 2015 and 2016.

The estimate is that if the Tories win, and a majority of seats they are likely to be

without, the economy should grow by 2.3 percent in 2015, 2.9 percent in 2016 and

2.5 percent in 2017, the report said.

Also, debt servicing costs have risen gradually over the last five years and if the size of Government debt falls then so will the tax burdens of households and businesses.

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