When your mind´s made up…there´s no point trying to change it!

From The Telegraph:

Turmoil in China and slower UK growth will not blow the Bank of England’s plans to raise interest rates off course, policymakers are expected to signal this week.

While economists said there was “little doubt” that rates would be kept at a record low of 0.5pc for a 78th consecutive month, minutes of the September meeting, which will be published alongside the Monetary Policy Commitee’s (MPC’s) rate decision, are expected to highlight the strength of the domestic economy, even as the nine member panel remains split over the timing and path of rate rises.

Later

Michael Saunders, chief UK economist at Citi, said even a sharp slowdown in China would only exert a “modest” drag on UK growth and inflation, while stronger pay growth meant increases in real income were on course to reach 3.5pc this year, a level that has not been seen over the past decade.

“The UK suffered several mini-slowdowns during the long pre-crisis expansion from 1993-2007. But, when one looks back at the period as a whole, what stands out is the economy’s resilience and the expansion’s ability to shrug off minor setbacks. Unless global conditions or UK credit availability worsen markedly, we suspect the same will apply in coming years,” he said.

Exactly, but why? Is a repeat performance guaranteed as he suspects?

The charts indicate the reason for the UK´s economy “resilience” from 1993 to 2007. That´s because NGDP growth was kept “right on top” of a trend level growth path of 5.4%. With that, RGDP was also kept stable, “shrugging off minor setbacks”!

When your minds made up_1

The growth chart shows the result of the lost NGDP stability. Given that NGDP growth has remained substantially below the previous trend path and has been somewhat volatile, I believe Michael´s “suspicion” is not warranted!

When your minds made up_2

Title song

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