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.

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Rarely has it mattered so little if Manchester United won; rarely has it been so special they did

Team's Europa League victory offers chance for sorely needed celebration of a city's spirit.

Carlo Ancelotti, the Bayern Munich manager, memorably once said that football is “the most important of the least important things”, but he was only partly right. While it is absolutely the case that a bunch of people chasing around a field is insignificant, a bunch of people chasing around a field is not really what football is about.

At a football match can you set aside the strictures that govern real life and freely scream, shout and cuddle strangers. Football tracks life with such unfailing omnipresence, garnishing the mundane with regular doses of drama and suspense; football is amazing, and even when it isn’t there’s always the possibility that it’s about to be.

Football bestows primal paroxysms of intense, transcendent ecstasy, shared both with people who mean everything and people who mean nothing. Football carves out time for people it's important to see and delivers people it becomes important to see. Football is a structure with folklore, mythology, language and symbols; being part of football is being part of something big, special, and eternal. Football is the best thing in the world when things go well, and still the best thing in the world when they don’t. There is nothing remotely like it. Nothing.

Football is about community and identity, friends and family; football is about expression and abandon, laughter and song; football is about love and pride. Football is about all the beauty in the world.

And the world is a beautiful place, even though it doesn’t always seem that way – now especially. But in the horror of terror we’ve seen amazing kindness, uplifting unity and awesome dignity which is the absolute point of everything.

In Stockholm last night, 50,000 or so people gathered for a football match, trying to find a way of celebrating all of these things. Around town before the game the atmosphere was not as boisterous as usual, but in the ground the old conviction gradually returned. The PA played Bob Marley’s Three Little Birds, an Ajax staple with lyrics not entirely appropriate: there is plenty about which to worry, and for some every little thing is never going to be alright.

But somehow the sentiment felt right and the Mancunian contingent joined in with gusto, following it up with “We’ll never die,” – a song of defiance born from the ashes of the Munich air disaster and generally aired at the end of games, often when defeat is imminent. Last night it was needed from the outset, though this time its final line – “we’ll keep the red flag flying high, coz Man United will never die" – was not about a football team but a city, a spirit, and a way of life. 

Over the course of the night, every burst of song and even the minute's silence chorused with that theme: “Manchester, Manchester, Manchester”; “Manchester la la la”; “Oh Manchester is wonderful”. Sparse and simple words, layered and complex meanings.

The match itself was a curious affair. Rarely has it mattered so little whether or not United won; rarely has it been so special that they did. Manchester United do not represent or appeal to everyone in Manchester but they epitomise a similar brilliance to Manchester, brilliance which they take to the world. Brilliance like youthfulness, toughness, swagger and zest; brilliance which has been to the fore these last three days, despite it all.

Last night they drew upon their most prosaic aspects, outfighting and outrunning a willing but callow opponent to win the only trophy to have eluded them. They did not make things better, but they did bring happiness and positivity at a time when happiness and positivity needed to be brought; football is not “the most important of the least important things,” it is the least important of the most important things.

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