Shocker: BBC Makes Economic Sense

Here's a flying pig moment. The BBC publishes an article on economics that makes sense and does not blame the United States and George W. Bush for everything.

Bank 'signals' interest rate fall

The Bank of England has warned of a number of risks to the UK economy next year, in comments that analysts have said point to lower interest rates.

In its quarterly Inflation Report, the Bank forecast the economy would slow in 2008 and inflation would accelerate.

However, it added that even if interest rates fell by half a percentage point, it would still hit inflation targets.

Analysts said that this signals that interest rates should dip next year from their current level of 5.75%.

For comparative purposes, the U.S. Fed discount rate was recently lowered to 4.50% and this disparity between the low rates has contributed to the devaluation of the dollar relative to the pound.

Well, that cheaper dollar has made it very hard for the UK to sell goods and services to the U.S. Inflation is also starting to be come a concern in the UK.

But the Bank also expects inflation to rise in the short-term as higher energy prices begin to bite.

As much as I rip the BBC, in all fairness, I must say this is an amazingly well-written article on economics. They must have an editor who put down Das Kapital for a few months and took an extension Econ 101 class.

Bank of England Raises Key Rate

It looks like inflation continues to heat up in England.

Bank of England raises key rate to 5.75%: U.K. rates hit six-year high; further hike may be on the cards

The Bank of England elected to raise interest rates for the fifth time in under a year Thursday, with rates hitting a six-year high as the bank continues to fight above-target inflation.

The central bank's Monetary Policy Committee hiked its key rate by a quarter-point to 5.75%, in line with the forecast of most economists. The move followed a tight vote at the committee's last meeting in June, which saw Governor Mervyn King's call to raise rates defeated in a five-to-four vote.

This now raises the English discount rate to 0.50% higher than the US rate. Look for the dollar to depreciate relative to the pound. That will make U.S. goods relatively cheaper to buy and thus improve the U.S. export/import picture.

I'd keep a close eye on this situation. Five increases in less than 12 months is the equivalent of locking up your brakes on the expressway. The Bank of England must be pretty spooked about the core inflation numbers and productivity numbers they are seeing.