MPC prepared to overlook "period of above-target inflation"

Bank of England dashes hopes of the inflation hawks.

The Bank of England's monthly inflation report confirms that its Monetary Policy Committee is heeding the advice of incoming governor Mark Carney and accepting an "overshoot" of inflation.

Speaking to MPs last week, Carney had confirmed he favoured a flexible inflation target. While he isn't convinced scrapping the target entirely "is a risk worth taking", he stated that he accepts the need for a bit of lee-way on the price target while growth is still below trend.

Today's report from the MPC backs up that argument. The Bank writes:

As long as domestic cost and price pressures remained consistent with inflation returning to the target in the medium term, it was appropriate to look through the temporary, albeit protracted, period of above-target inflation.

Attempting to bring inflation back to the target sooner by removing the current policy stimulus more quickly than currently anticipated by financial markets would risk derailing the recovery and undershooting the inflation target in the medium term.

The MPC’s remit is to deliver price stability, but to do so in a way that avoids undesirable volatility in output.

The key reason for the bank's decision is that it doesn't see GDP increasing quick enough, soon enough, to clamp down on inflation in a way which may damage growth. It predicts GDP returning to positive annual increases, but only reaching 2 per cent annual growth — the barest which could be described as acceptable — in the second quarter of 2014. It also sees a high possibility, although still below 50 per cent, of a contraction in the second quarter of 2013:

As a result, the loosening of the inflation target sans that the bank now doesn't see the rate returning to its two per cent target until 2015:

The news sent the pound down against all major currencies:

But the greater tolerance of inflation only goes so far. The MPC gave no indication that it was inclined to increase quantitative easing, typically seen as a trade-off between growth and inflation in a demand-constrained economy. Whether that means the MPC thinks demand is no longer constrained, or whether its tolerance has limits, remains unclear.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty Images/Richard Stonehouse
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Here's how Jeremy Corbyn can win back the Midlands

The Midlands is where elections are decided - and where Jeremy Corbyn can win. 

The Midlands: this “formless” place is where much of Labour’s fate lies. The party witnessed some of its most disappointing 2015 results here. In those early, depressing hours of 8 May, Nuneaton was the result that rang the death knell of Labour’s election chances. Burton, Cannock Chase, Halesowen & Rowley Regis, Redditch and Telford weren’t far behind. To win here Labour need to build a grassroots movement that engages swing voters.

Luckily, this is also a place with which Labour’s new leader has a natural affinity. The bellwether seat of Nuneaton is where Jeremy Corbyn chose to hold his last regional rally of the leadership contest; just a couple of counties over you’ll find the home Corbyn moved to in Shropshire when he was seven. He cut his political teeth round the corner in marginal constituency The Wrekin; it was in this key seat he did his first stint of campaigning. Flanked by a deputy leader, Tom Watson, who represents Labour stronghold West Bromwich East, Corbyn has his eye on the Midlands.

As MP for Islington North since 1983, Labour’s leader has earned London-centric credentials that have long since overshadowed his upbringing. But Corbynism isn’t a phenomenon confined to the capital. The enthusiasm that spilled out of Corbyn’s summer leadership rallies across the country has continued into the autumn months; Labour’s membership is now over 370,000. It’s fast catching up with 1997 figures, which are the highest in the party’s recent history.

London is the biggest beneficiary of this new movement - with 20 per cent of Labour’s members and 19 per cent of new members who signed up the week before conference coming from the capital. But Corbynism is flourishing elsewhere. 11 per cent of all Labour party members now reside in the southeast. In that same pre-conference week 14 per cent of new members came from this mostly Tory blue area of the country. And since last year, membership in the southwest increased by 124 per cent. Not all, but a good deal of this, is down to Corbyn’s brand of anti-austerity politics.

A dramatic rise in membership, with a decent regional spread, is nothing to be sneered at; people are what you need to create an election-winning grassroots movement. But, as May proved, having more members than your opposition doesn’t guarantee victory. Corbyn has spoken to many who’d lost faith in the political system but more people need to be won over to his cause.  

This is clear in the Midlands, where the party’s challenges are big. Labour’s membership is swelling here too, but to a lesser degree than elsewhere. 32 per cent of party members now and 13 per cent of those who joined up in seven days preceding conference hail from this part of the country.

But not all potential Labour voters will become card-carrying members. Corbyn needs to speak to swing voters. These people have no party colours and over the summer they had mixed views on Corbynism. In Nuneaton, Newsnight found a former Labour turned Ukip voter who thought Corbyn would take Labour “backwards” and put the economy at risk. But a fellow Ukip voter said he saw Corbyn as “fresh blood”.

These are enduring splits countrywide. Voters in key London marginal Croydon Central gave a mixed verdict on Corbyn’s conference speech. They thought he was genuine but were worried about his economic credibility. While they have significant doubts, swing voters are still figuring out who Labour’s new leader is.

This is where the grassroots movement comes into play. Part of the challenge is to get out there and explain to these people exactly who the party is, what it’s going to offer them and how it’s going to empower them to make change. 

Labour have nascent plans to make this reality in the Midlands. Tom Watson advocated bringing back to life this former industrial heartland by making it a base for manufacturing once again – hopefully based on modern skills and technologies.  He’s also said the leadership team will make regular regional visits to key seats. Watson’s words chime with plans floated by shadow minister Jon Trickett: to engage people with citizens’ assemblies where they have a say over Labour politics.

But meetings alone don’t make grassroots movements. Alongside the economy, regional identity is a decisive issue in this – and other – area(s) of the country. With the influx in money brought in by new members, Labour should harness peoples’ desire for belonging, get into communities and fill the gaps the Government are leaving empty. While they’re doing this, they could spread the word of a proper plan for devolution, harking back to the days of municipal socialism, so people know they’ll have power over their own communities under Labour.

This has to start now, and there’s no reason why the Midlands can’t act as a model. Labour can engage with swing voters by getting down to a community level and start showing – and not just saying –  how the party can make a difference. 

Maya Goodfellow is a freelance journalist.