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It's like, having twins..
The Bank of England will today decide if UK interest rates are to be increased or kept on hold. In fact, they have no real choice, but I'll talk about this later.
Being the governor of the Bank of England(BOE) and being parents are in a way, very similar. You are presented with facts that require decisions, sometimes easy and others difficult. Some popular and others not so popular, but you make those decisions with the comfort that it is for the greater good of all involved. Or is it?
In this case the parents have twins; Inflationus and Growthionus. Growthionus has been the star since birth and Inflationus has been the quiet one, until now. The problem is, Inflationus has in the last few months been showing really bad behavioural problems and his teachers are worried. The two are just coming into their teens and their parents have expected some minor issues, but nothing on this scale. Apparently Inflationus has been exhibiting strange behaviour, spitting at other children, stealing their lunch money, copying their homework and openly flirting with the cleaning ladies. Reports from the teachers are that most of what is happening they have seen before, however some of his behaviour is slightly exotic and they have never seen anything like it. They suspect the cause has something to do with his insatiable appetite for chocolate milkshakes and the sudden price increase in this valuable commodity.
All good parents will of course respond to the problems of their little ones with all the vigour that can be expected. They will stop at nothing to ensure Inflationus turns out ok even if this means neglecting Growthionus for a little while. The problem is they will not be able to give equal attention to both at this moment because of the circumstances and in the long term will hurt Growthionus. We can thus expect Growthionus to struggle a little over next few years while his parents try to remedy his brother. Hopefully all the love and attention he, Growthionus has received over his life will ensure that he will be able to cope with the pressures of teen hood and not fall foul or attempt something like suicide! It's a risk the parents will have to take, they have no real choice.
Talking of no real choice; The BOE at this stage has no choice. Rates will stay on hold at least for the next few months and from there we can possibly expect a rate rise all depending on how inflation behaves. The effect; growth will be lower and there is a very good chance that it will be non existent.
There is no need to be depressed, simply get on with it and deal with the situation as it plays out.
The opinions expressed are those of the author and are not held by PSG Consult unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.
Posted: 11:00 10/07/2008 Author R. Truter