In November 21, the Bank of England yest again kept interest rates at 0.1%pa despite pressure as inflation is currently at 3.1%pa and forecast by the Bank to increase to 5% in 2022 before gradually fall back to the Government’s trend growth of 2%pa.
The reality of all governments is that they need inflation to devalue debt. Covid-19 debt in the UK today is at World War II levels and the rest of the World has similar problems.
Debt needs to be repaid or devalued by inflation and then repaid.
When looking at both Government and Bank of England statements, the last two Budgets moved to increase National Living Wage, to continue with pumping money into economy with quantitative easing, to freeze tax allowances and increase corporation taxes, tell us the Government wants inflation, yet the ‘spin’ message is that it will bring inflation under control starting next year. If inflation reduction is key, whey are they not doing it now.
Do not believe all the spin that the Bank of England will increase interest rates to wrestle inflation back, it will allow a few years of higher inflation with only marginal interest rates increases and then start to pair it back properly with real, higher interest rates in 4 or 5 years. By allowing inflation to run up to 5% and drift back down to 4%, 3% and then trend at 2% (although we have looked at the average of 2.16% over the last year) and government debt will be devalued by around 28% in 10 years and 40% plus in 20 years.
This will drive wages up, costs of goods and services up, investments up and property prices up. These will all mean even greater tax revenue across all sectors.
The inflation cycle has begun and the boom boost economy will return.
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