It's coming... Yesterday's MPC minutes showed a nine-to-zero majority in favour of holding the base rate at its laughable 0.5%, and worse, hints that that their next move may be another round of quantitative easing.
The last round of QE in March 2009 involved printing £200 billion and injecting it into the UK economy. The net effect is thought to be 2% GDP growth. GDP is about £1.4 trillion per year so they "spent" 14% of GDP to gain a 2% boost. Of course it wasn't really "they" who did the spending, it was us - we are paying for the £200bn QE in the form of higher inflation. Money derives its value from its scarcity. Make it less scarce and it loses value. Every time you buy an inflated loaf of bread you're paying your share of that £200bn. You will be paying for many years to come; long after the QE boost has gone away.
And now they're thinking about doing it again.
Also revealed yesterday is the fact the government borrowed £13.8bn last month. That's two billion more than the same month last year. This from a government which claims to be cutting the deficit.
It must be admitted that the main problem for the exchequer last month was lower than expected income tax receipts, so they may be cutting spending, but the effect is to reduce the tax yield by more. We're in danger of falling into the Greek tax trap here - a vicious circle of cutting spending causing tax yield to fall thus requiring even more spending cuts.
Presumably the mega-brains in HM Treasury have seen the problem looming, and thus the urge to print has returned. The printed money would of course be used to finance government borrowing - indirectly by buying gilts on the open market. Unfortunately printing money is another trap. It's a quick dose of neat sugar. First the glucose high, followed by the need for even more to sustain our energy levels: QE causes price inflation, people can afford to buy less stuff, businesses suffer and employ fewer people. (Did I mention unemployment has just hit a recent high of 2.5 million?)
The right answer of course is to get inflation down. The whole aim of government economic policy should always be: non-inflationary growth. Growth at the price of inflation is not worth having. You feel good today but even worse tomorrow. And to get this non-inflationary growth they will need to raise the base rate - taking the pain on the chin - until inflation is squeezed out of the system and people's real, after-inflation, spending power starts to go up. Then businesses will find sales rising, revenues increasing, and will hire more people and the whole economy will splutter back into life.
But of course that does mean taking some short-term pain. And they've prevaricated for so long that the pain will be significant. A rise in base rates will cause more unemployment, a fall in house prices, and will suck in imported goods which will seem cheaper. But there is no real alternative. A Nationalist government could deal with the unemployment issue by removing immigrants. This government wouldn't of course. And if they keep hitting the sugar we'll find out what an economy in a diabetic coma looks like.