THERE is already chatter about the next price bubble, even though output has yet to return to where it was in 2007.
House prices have started rising again, thanks to public subsidy of mortgages, and Mark Carney, our new superstar Bank of England boss, has persuaded the rest of the monetary policy committee (MPC) to keep rates low for as long as it takes to reduce unemployment.
If you assume that the UK has lost a lot of productive capacity since the credit crunch (which we have) then it won’t take a lot for demand to outstrip supply again.
That said, the real problem only arises if ordinary citizens think that inflation is back and start demanding compensatory wage increases. Plus Carney can only keep the inflation hawks on the MPC in line if prices stay within moderate limits. Otherwise, the hawks will vote to raise interest rates. And that is the last thing that Chancellor Osborne needs at the moment.
So what is the buzz on the street about inflation? The latest Bank of England opinion poll on inflation expectations makes interesting reading. Intriguingly folk think price increases are actually moderating.
Asked to guess the current rate of inflation, respondents said 4 per cent. But they said 4.5 per cent the month before. Asked where they thought inflation was going in the months to come, the average guess was 3.2 per cent. Again, on the last poll, the average was higher at 3.6 per cent.
So while the TUC is now breathing fire about future strike action, the public seem more sanguine about prices. That could reflect the impact of the (modest) economic recovery on confidence – if people feel they are better off, they worry less about prices.
Carney can also take comfort in the fact that only 29 per cent of people think that interest rates will rise over the next 12 months, down from 34 per cent in May. In fact, this is the lowest response since November 2008 at the height of the banking crisis. The odds on a bumper Christmas in the shops have just shortened.
Too many flights of fancy may be wasteful
Thursday’s Scotsman conference on the future of the Scottish and UK aerospace industry, held at the spectacular Prestwick HQ of the National Air Traffic Service, brought together the cream of the local aircraft industry.
This was part of the first Prestwick World Festival of Flight, which I’ve been helping to organise. Speakers included Michael Moore, the Scottish Secretary of State, and Fergus Ewing, Holyrood’s enterprise minister.
The key debate was about the new Aerospace Technology Institute (ATI), set up by Vince Cable to pump £2 billion into aviation research. Everybody agrees that global aerospace technology is undergoing a phase change and that the UK is living off research from an earlier generation.
My worry is that the ATI – a grand partnership of civil servants, aerospace firms and universities – is fated to try and please everybody, so spreading the funds too thinly to make an impact.
Better perhaps to go for broke on a single application where the UK already has a lead, such as air-breathing rocket engines that could bring the Holy Grail of space ships that land and take off from conventional runways – starting with Prestwick.