Sentance to ponder [sic]
Andrew Sentance (yes, sorry about that) writes in the Sunday Times about inflation and in particular, why it is stubbornly high in the UK compared to the rest of the world. Taking out the VAT rise, strong oil price and fall in the pound, he notes that: It appears that instead of pushing down significantly on cost and price increases, the impact of spare capacity on domestic inflation has been muted. Assuming this is correct - and we must remember that there is an economic recovery under way, so we'd expect some inflation - we are left with an important question. Why is there so little spare capacity in the UK? It's important not just in order to keep inflation down. More deeply, it matters because real growth in the economy only happens when more productive capacity comes into use. If there is no spare capacity, we can't have growth until we invest in new production, and that takes time. Sentance points out that: Unemployment has risen to a lower level than...in t...