Cazenove chief economist: Britain faces 'a nasty problem'

The Bank of England has focused too much on avoiding deflation at the expense of countering declining real incomes, according to Cazenove.

Richard Jeffrey, Cazenove's chief economist, says Britain stands "on the cusp of a very nasty problem" where rises in real take home pay severely lags price inflation. While inflation hit 3.1% in July, the latest quarterly measure of average weekly earnings growth fell to around 1.5%, from almost 5% in late 2008. The impact of the VAT increase in January will exacerbate the difference, Jeffrey adds. He says the coalition Government has "driven down a blind alley" in its bid to stave off price deflation by printing more money and keeping interest rates at 0.5% since March 2009. "The...