Eurozone and Britain heading in different directions

Olli Rehn, Vice-President of the European Commission in charge of Economic and Monetary Affairs and the Euro, gave a Press conference on the Union’s economic forecasts for 2012-2013. (EC Audiovisual Services).

Olli Rehn, Vice-President of the European Commission in charge of Economic and Monetary Affairs and the Euro, gave a Press conference on the Union’s economic forecasts for 2012-2013. (EC Audiovisual Services).

Eurostat, the EU statistical service, confirmed yesterday that its ‘flash estimate’ of September inflation at 1.1% is correct. In a brief Press release, the Service announced that, “Euro area annual inflation was 1.1% in September 2013, down from 1.3% in August. A year earlier the rate was 2.6%. Monthly inflation was 0.5% in September 2013”. Eurozone’s inflation has being falling fast. Within three months it fell from 1.6% in July to 1.1% in September.

According to the same source in September 2013, the lowest annual rates were observed in Bulgaria (-1.3%), Greece (-1.0%) and Latvia (-0.4%), and the highest in the United Kingdom (2.7%), Estonia (2.6%) and the Netherlands (2.4%). Compared with August 2013, annual inflation fell in seventeen Member States, remained stable in eight and rose in three. The negative readings for Greece and Bulgaria were expected due to the deep recession both countries are in, but the 2.7% inflation rate for Britain appears on the high side.

Britain in danger of more inflation

Actually, Britain is in completely different economic conjuncture than the rest of the European Union. The Bank of England has embarked in a super relaxed monetary operation designed to keep interest rates low. Its ultimate targets are not monetary though, and are aimed at more growth and less unemployment, without paying much attention to the inflationary repercussions this policy may have. Many analysts fear that this may soon lead to capital outflows from the sterling in anticipation of an inflation spiral.
The new governor of the Bank of England, Mark Carney, has repeatedly confirmed that the central bank of Britain is not to raise its basic interest rate from the currently very low-level of 0.5%, “until the Labour Force Survey headline measure of the unemployment rate has fallen to 7%”. In this way BoE has set an economic policy target, which doesn’t belong to its sphere of monetary mandate.

The question is whether the BoE will be able to maintain capital market interest rates at their current very low levels of 0.5% and at the same time avoid a capital outflow from the sterling. It may soon be confronted with renewed inflation pressures and a fast falling foreign value of the currency, feeding further price increases. In any case Britain enjoys a more robust growth that Eurozone and the BoE wants to strengthen it.

In continental Europe the conjuncture is almost the opposite. Fast falling inflation has not yet prompted the European Central Bank to cut further its interest rates. However, ECB’s President Mario Draghi, has left this possibility open for the next meeting of the bank’s Governing Council at the beginning of November. The obvious target is to support growth.

Eurozone risks more recession

Eurozone’s problem is now its very low, fragile and uneven growth recorded during the past few months in the 17 member states. After three consecutive years of recession, the 0.3% increase of GDP during the second quarter of 2013 may easily return to the south part of the graph, threatening in this way to send euro area in a disinflation and a zero or negative growth vicious cycle.

In this respect Eurostat’s confirmation of September’s inflation at 1.1% is not a good sign. ECB says that its inflation target is at below 2% but not much way from this benchmark. By any measure, the 1.1% is far below the target. Concerning monetary policy, ECB applies almost the same super relaxed policy tools as the BoE, in a completely different economic conjuncture though. As a result, while Britain runs the risk of an inflation spiral, Eurozone may end up in a disinflation and negative growth vicious cycle.






the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Somalis ‘will not be deterred’ by Friday’s terror attacks – UN chief

The Catcher in the Rice

Heat stress spike predicted to cost global economy $2,400 billion a year

Brexit and migration dominates the debate on October’s EU summit

Plans to keep EU budget funding in 2020 in the event of a no-deal Brexit

EU car manufacturers worry about an FTA with Japan

Brexit: EP Group leaders support a flexible extension until 31/1/20

The Europeans with a job diminish dangerously

Turkey needs to step up investment in renewables to curb emissions

In Afghanistan, attacks against schools have tripled in one year

As human caravan moves through Mexico, ‘full respect’ needed for national control of borders: UN chief

Independent UN rights experts call for ‘immediate investigation’ into alleged Bezos phone hack by Saudi Arabia

Parliament makes it easier to organise a European Citizens’ Initiative

Young activists do the talking as UN marks World Children’s Day

What makes America the world’s most competitive economy?

4 things President Trump could learn from Jimmy Carter

Climate emergency: City mayors are ‘world’s first responders’, says UN chief

North Sea fisheries: MEPs back EU plan to sustain stocks of demersal species

Six months into DR Congo’s deadliest Ebola outbreak, top UN official praises ‘brave’ response effort

Global Citizen-Volunteer Internships

Wednesday’s Daily brief: Day 3 of anti-hatred summit, UNFPA turns 50, Ben Stiller #WithRefugees, updates on Abyei

Mankind’s first tool to fight malaria also kills

UN relief chief urges Security Council to back aid delivery, more funding for millions of Syrians hit by harsh weather

Mali facing ‘alarming’ rise in rights violations, warns UN expert

The future of manufacturing is smart, secure and stable

When is Berlin telling the truth about the EU banking union?

Wednesday’s Daily Brief: Guterres in Kenya, Prisoners sick in Iran, #GlobalGoals, Myanmar, Ukraine updates, and new space partnership

Don’t let smoking steal life’s breathtaking moments, urges UN health agency

Millions of Bangladeshi children at risk from climate crisis, warns UNICEF

Somalia: UN urges steps to ensure future elections not ‘marred’ by rights abuses seen in recent polls


Why income inequality is bad for the climate

OECD strengthens co-operation with Morocco – Renews Morocco Country Programme Agreement

How quantum computing could beat climate change

Why do medical students need to emigrate to become doctors in 2017?

Malaysia can show the way towards a holistic model for human rights

Eurozone: Retail sales and inflation point to recession

When it comes to envirotech adoption, NGOs can lead us out of the woods

Have we reached peak smartphone?

Africa: Urgent action needed to mobilise domestic resources as tax revenues plateau

Why do US presidential elections last so long? And 4 other things you need to know

We can save our ocean in three steps – if we act now

4 bold new ways New York is going clean and green

Denmark plans ‘Silicon Valley’ on 9 artificial islands off Copenhagen

Joint EU-U.S. statement following the EU-U.S. Justice and Home Affairs Ministerial Meeting

A win-win strategy for private equity deals

Humanitarian visas would reduce refugees’ death toll

5 libraries doing innovative things to help their communities

A Young student assesses the Programme for International Student Assessment (PISA)

UN condemns Syrian ‘war on children’ as up to 30 reportedly killed in clashes

Smart devices must come with trust already installed

Reusable packaging: 6 benefits beyond sustainability

Commission: Gifts of €6 billion and free trainees to ‘help’ poor employers

Air pollution could be responsible for 1 in 7 new cases of diabetes

Mergers: Commission opens in-depth investigation into PKN Orlen’s proposed acquisition of Lotos

Community Manager – 1289

Alarming level of reprisals against activists, human rights defenders, and victims – new UN report

How to turn Africa’s manufacturing sector into a high-tech powerhouse

5 lessons for the future success of virtual and augmented reality

What makes a great CEO? The people they surround themselves with

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s