New York, NY (PressExposure) August 04, 2010 -- "Mann International" analysts believe that there is more danger to the UK economy from runaway inflation than there is a risk that the recovery will wane if interest rates are raised.
The analysts suggest that the recovery is going to stall at some point and there is little that can be done to prevent it so the Bank of England should consider raising interest rates.
"Mann International" issued the statement after the Governor of the Bank, Mervyn King, told a committee of UK Members of Parliament that the country was at risk of suffering from a bout of stagflation, a term that describes an economic condition where GDP remains stagnant or barely increasing but retail prices soar.
The firm believes that the Bank of England may be forced to restart its quantitative easing program in order to create the money the government needs to function and that this will almost certainly increase inflationary pressures whilst battering sterling on the foreign exchanges.
"Mann International" analysts said that there is little doubt that interest rates are likely to remain low for far longer than most economists expect and investors should not read too much into sterling's recent recovery.
"The UK is still in serious trouble and it remains to be seen how the economy deals with the very real prospect of a double dip", one of the analysts said.
"Mann International" said that key market participants remain skeptical of the tests owing to their lack of adequate information on the hypothetical scenarios being tested.
The firm conceded that, for the most part, the markets appeared to have taken a positive view of the process but one analyst said "Uncertainty remains in sufficient quantity to render the entire exercise irrelevant and, frankly, this has been the case with the EU in several instances including the bailout of Greece and the European Financial Stability Facility. Nobody understood how any of it was going to work."
"Mann International" believes that the most important question the markets wants answers to is the effect of a sovereign default on one or more banks but the EU authorities have been reluctant to provide an indication of what kind of "haircut" or level of restructuring it is applying in the tests.