The new year has started as 2019 finished with stock markets generally going up, amid the usual daily chatter around the world.
The main economic talk in the UK this week seems to be about an imminent interest rate cut as the economy is supposedly weak. I’m not sure if things are that bad. Some surveys suggest business confidence is actually quite good and that money is waiting to be invested. The housing market also perked up at the end of 2019.
Some economists think that interest rates need to be cut because inflation is too low and point out that the CPI measure of inflation is only running at an annual rate of 1.3 per cent. This, to me, is ridiculous thinking. Low and even falling prices are generally a good thing. It means that the money in your pocket or bank account buys more stuff. Low prices stimulate economic activity, yet too many economists have this muddled way of thinking that prices need to rise faster.
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