http://hypoventurecapital-financialideas.com/?p=66What we see here are successive Bank of England forecasts for British output. From 2005 to 2007, the lines are tightly bunched and follow the longer trend. Beginning in late 2007, this pattern changes and output forecasts fall. And what’s interesting is that after the big decline that occurs between August of 2008 and May of 2009, expectations continue to deteriorate. It isn’t just the level that changes, either, but the slope. The last line, for the forecast released this week, seems not only to be well below the pre-recession trend, but to point away from it, suggesting that Britain won’t be recovering its lost economic ground, and may well continue to fall farther behind the circa 2006 trend.
Inflation forecasts continue to rise, by contrast, though Mervyn King argues that energy prices, and therefore inflation, would ultimately fall back. The swoon in commodity prices of late supports this view. Looking at the above image, however, and at inflation forecasts, one is tempted to conclude that the fall in output represents a real loss in productive capacity. And I wonder if at least some of the members of the Bank of England’s Monetary Policy Committee don’t see things that way, as well.
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