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The London Business School with Gower Publishing
Author(s) -
Currie David,
Dicks Geoffrey
Publication year - 1990
Publication title -
economic outlook
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.1
H-Index - 8
eISSN - 1468-0319
pISSN - 0140-489X
DOI - 10.1111/j.1468-0319.1990.tb00675.x
Subject(s) - treasury , economics , pound (networking) , inflation (cosmology) , interest rate , real interest rate , monetary economics , depreciation (economics) , exchange rate , pound sterling , fiscal policy , publishing , keynesian economics , macroeconomics , profit (economics) , political science , physics , microeconomics , capital formation , financial capital , theoretical physics , world wide web , computer science , law
The Budget embodies many of the recommendations that we have put forward over the last year ‐on personal savings and the appropriate stance of macroeconomic policy ‐ but a void remains on the key issue of ERM entry. With inflation set to rise above 9 per cent in the short term, there is a danger that an inflation l sterling depreciation cycle becomes entrenched. In fiscal terms, the Budget was broadly neutral and the Chancellor con‐ firmed that the strategy is to rely on high interest rates to support the exchange rate and tame inflation. This year, with base rates of 15 per cent, we expect the pound to remain reasonably stable but in 1991‐2, as interest rates fall ‐which they are bound to ahead of the election ‐the pound could well come under pressure, so putting the government's inflation objectives at risk. ERM entry would provide the obvious support and is consistent with the Treasury forecast. Without it, inflation is unlikely to fall below 5 per cent next year.