The inflation hawks were wrong

As NS economics editor David Blanchflower predicted, inflation has plummeted in the last year.

Last year, as inflation rose to more than 4 per cent (it eventually peaked at 5.2 per cent last September), a band of right-wing commentators and economists demanded that the Bank of England hike interest rates in an attempt to bring prices down. Andrew Sentance, then a member of the Bank's Monetary Policy Committee (MPC), bemoaned "the lack of a substantive policy response to persistent above-target inflation" and warned that "if we do not start to raise UK interest rates gradually soon, we risk having to do so more aggressively in the future". A fearful leader in the Spectator declared: "Inflation is back with a vengeance...Britain is once again in an inflationary cycle...For how much longer can high inflation be described as a blip?"

Others, however, including New Statesman economics editor David Blanchflower, argued that the spike was largely due to temporary factors such as the VAT increase, higher global commodity prices, and the depreciation of sterling, and predicted that inflation would fall back in 2012. In February 2011, in a piece entitled "Stop worrying about inflation", Blanchflower wrote:

Inflation is going to collapse in 2012 when the impact of the one-off increase in VAT, oil and commodity prices and the exchange-rate depreciation mechanically drop out of the inflation calculations. As Mervyn noted in his recent speech, these three items alone account for 3 per cent of the current 3.7 per cent CPI inflation rate.

Well, the results are in and it looks like Blanchflower was right again (as I've noted before, he was one of the few economists to warn that George Osborne's excessive austerity measures would trigger a double-dip recession). Inflation, as measured by the Consumer Price Index, was just 2.2% last month, the lowest level since November 2009 (see graph below) and only 0.2 per cent above the Bank's target rate.

Inflation is expected to rise over the next few months as this year's round of energy price increases take effect, but it is still likely to remain close to the 2 per cent target rate (which should, in any case, be raised). This should prompt the Bank to keep interest rates at their record low of 0.5 per cent and consider a third round of quantitative easing. As in the US, where Federal Reserve chairman Ben Bernanke has pledged to keep rates near zero until at least mid-2015, sustained monetary stimulus is needed to support growth and employment, not least when the government's fiscal policy remains so determinedly self-defeating. While it appears that the economy returned to growth in the third quarter, the danger of a contraction in the fourth quarter (a triple-dip recession) remains. Had the Bank listened to the inflation hawks and hiked rates, the UK would have suffered an ever deeper double-dip.

It was already clear that the Hayekian right was disastrously wrong about fiscal policy; now it's clear that it was wrong about monetary policy too.

The Bank of England building on Threadneedle Street in London. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

Photo: Getty
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On the important issues, Louise Casey all too often has little to say

Far from moving the debate on, this new report on integration adds little to the report I commissioned in 2001. 

For 15 years, “numerous government reports on community cohesion and integration have not been implemented with enough force or consistency” concludes Louise Casey’s review of  integration.  The government’s lukewarm response suggests their effort will be as “diluted and muddled” as all the rest.

There’s a deeper reason why governments shy away from the measures that are needed. The report's wealth of data sets out a stark if sometimes contestable picture of a divided society.  But no amount of data can really bring the lives of our fellow citizens to life. As the Brexit vote underlined, this is now a nation divided by class, geography, education, wealth, opportunity and race. Those divisions colour the way we live our lives, the way we see problems in society, the relations we have with others, and our political choices. The report, like many before it, stops short of setting out that reality. It’s easier to pretend that most of us pretty much agree on most things; but just few people don’t agree and they must be the problem. Predictably, much of the early coverage has focussed on the Muslim community and new migrants. If only it were so easy.

According to Casey “in this country, we take poverty, social exclusion, social justice and social mobility seriously” and we do it “across political divides”. Apparently “creating a fair, just society where everyone can prosper and get on” is a cornerstone of British values. Yet for page after page the report chronicles the serial failure of this benign consensus to tackle educational under-performance, and economic and racial disadvantage. If we all agree, how come we haven't done anything about it?

These problems are not certainly easy to solve, but more lip service is paid to tackling them than effort. The practical material issues documented here need addressing, but punches are pulled when hard answers are needed. Given the dramatic impact of mass migration on cohesion, is integration possible while current rates of immigration persist? Can we find the political will to tackle poverty and disadvantage when those who might benefit from the effort are divided against each other by suspicion, race, geography and values? After all, rather than progressive policies producing a cohesive society, social unity is the precondition for the introduction of progressive policies.

We don't actually actually agree on what our “fundamental values” mean in practice. We can all sign up to democracy and the rule of law, but as soon as those are put into practice – see the court case on Article 50 – we are divided. When judges are popularly seen as “enemies of the people” and a vote in an elected parliament as a threat to democracy, in what sense are law and democracy fundamental?

Casey usefully highlights how treating homeless families equally, irrespective of ethnicity and length of residence can create the perception that minorities are being favoured over long standing residents. Our differing views on what is “just” and how “fairness” are defined can tear us apart. Is it fair to favour the newcomer over the indigenous? Is it just to put length of time on the waiting list above housing need? We often don't even acknowledge the legitimacy of other points of view, let alone try to find common ground.

The continual invocation of Britain and British values lends an air of unreality to the report.  Most people in England include British in their identity, but Englishness and English interests are of growing importance. In a worrying development, some areas of England  may be polarising between a white Englishness and an ethnic minority Britishness. Integration won't happen without a shared national story that combines a unifying national identity with the acceptance that we all have more than one identity that matters to us. Ignoring the reality of complex and multiple identities closes off one essential way forward.

None of this means that the criticism of some reactionary and occasionally dangerous ideas and practices in the Muslim community should be ignored and not confronted. But in a country where the established church opposes homosexual relationships and praise for Vladimir Putin's Russia is now mainstream politics it is hard to believe that all our problems can be reduced to the behaviour of a minority of a minority community.

John Denham was a Labour MP from 1992 to 2015, and a Secretary of State 2007 to 2010. He is Director of the Centre for English Identity and Politics at Winchester University