Newspaper article The Evening Standard (London, England)

Believe It or Not, Inflation's a Worry; CITY COMMENT

Newspaper article The Evening Standard (London, England)

Believe It or Not, Inflation's a Worry; CITY COMMENT

Article excerpt


ROBERT Jenkins, current chairman of the Investment Management Association, has a formula for spotting where the next shock in financial markets is likely to occur. It is to look at the agendas for the myriad financial conferences that take place at any given time and try to work out what does not feature. Two years ago, he tells us, the topic no one wanted to hear about was risk management, because they assumed they had nothing left to learn.

Complacency catches everyone out in the end so it is worth applying his formula today, to find out what could easily be plaguing us in two years' time. While it is difficult to spot what is not there -- in the sense that it could be almost anything -- nevertheless, the issue that stands out by its absence more than anything else is inflation.

Many might find this astonishing -- or rather those of us who were working through the Seventies and Eighties might find it thus. But there is a big divide. No one who has become economically active since 1990 -- anyone under 40 -- has much first-hand knowledge of inf lation, just as they had never seen falling house prices until last year.So their default position is once again that it is not going to happen. Hence, it is nothing to worry about.

Let us hope they are right, but it is probably not the way to bet. The big news yesterday was that the Bank of England is to extend its programme of quantitative easing as a technique for injecting liquidity into the economy and freeing up the credit markets. It has spent [pounds sterling]50 billion buying Government bonds so far, and it wants permission to buy a further [pounds sterling]75 billion.

No one really registers how much sums like this mean -- which is why governments can get away with spending it so easily. Suffice it to say that if you signed a dollar bill every second -- or a Scottish [pounds sterling]1 note as they still have them there -- 24 hours a day, seven days a week and with never a break, it would take more than 30 years to get to a billion. So quantitative easing is deploying a truly staggering sum of money -- more than the annual yield from National Insurance and council tax combined. …

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