Mervyn King says problems ahead for many years

by Michael Smith (Veshengro)

The governor of the Bank of England, in a statement on Tuesday, January 25, 2011, indicated that he believes that things will get worse before they will get better and that people will face the worst fall in the standard of living since the 1920s.

He gave warning that inflation would rise to "uncomfortably high" levels this year – peaking at "between 4 per cent and 5 per cent" before "falling back" next year. Mr King also said that unless there was pay restraint, interest rates would quickly be raised.

Households are facing the most dramatic squeeze in living standards since the 1920s, Mervyn King said, as he reacted to the shock disclosure that the economy was shrinking again.

Families will see their disposable income eaten up as they “pay the inevitable price” for the financial crisis, Mervyn King warned and with wages failing to keep pace with rising inflation, workers’ take-home pay will end the year worth the same as in 2005 – the most prolonged fall in living standards for more than 80 years, so the chief of the Bank of England reckons.

There are also serious fears that the country is poised to slip back into recession, defined as two successive quarters of negative growth. Economists said the situation was “an absolute disaster”.

Since when the country has ever gotten out of the Great Recession is something the proof of which I would first like to see. It is all more than relevant and things are going to get worse, especially with the more-or-less inevitable rise in costs of motor fuel such s gasoline and diesel, with the rates in January 2011 being that high that is costs fifty pounds and more to fill up the tank of even a small family car. That makes it more expensive than flying from London to, say, Stuttgart and back.

Disposable household income has been hit by sharp increases in the cost of food, fuel and tax, coupled with restricted wage rises for most workers. Last year, take-home pay fell by about 12 per cent, official figures showed, and the trend was expected to continue in 2011.

The governor warned that the Bank “neither can, nor should try to, prevent the squeeze in living standards”.

In other words, folk, we are on our own and the ones that caused the dilemma siting pretty, the bankers and previous British government.

While the Con-Lib coalition government is being forced to bring in the serious austerity measures the situation is not of their making. It was the previous government, the Labor administrations of Blair and Brown, that did not curb the excesses of the banks and then plundered the Treasury, literally, to bail out the banks.

The only thing the current Chancellor of the Exchequer inherited from his predecessor was a note that said “Good luck! There is no money left” and not it is that party that blames it all on the new government.

Whatever the case, we are in trouble in, in real truth, the country is bankrupt. But things are not going to get better in a hurry either – pardon me for being the harbinger of bad news.

The truth is that, if predictions of the oil prices are going to be true, things are going to get a great deal worse. How are people going to commute when gas and diesel are hitting the £15 mark or more? And, according to some think-tanks this could happen in the next couple of years.

The recently launched report “The New Home Front” has a couple of answers and some serious food for thought on that level and we'd all do well to acquaint ourselves with it and its findings.

© 2011