UK inflation tipped for big fall!

Biped

LE
Book Reviewer
#1
BBC

UK inflation is tipped to show a sharp fall when official figures for December are released later.

Analysts polled by Reuters expect the Consumer Prices Index to have dropped sharply for the month, to an annual rate of 2.7%, from 4.1% in November.

The headline Retail Prices Index rate of inflation is predicted to drop below 1%, from November's annual rate of 3%.

Many economists expect the inflation rate to continue to slide in 2009, prompting fears of deflation.
Now, I'm not sure where they are getting this information for 2009. After everything that has gone on in the last year, with all the talking heads and 'experts' giving us the low down on how the value of the pound has been shattered, and how we have this huge trade deficit with the rest of the world for white goods, cars and more.

Quick heads-up on that news story - it's a load of politically inspired twaddle.

We DO import most of our goods.
The pound HAS shattered in value by, on average, 20% against most other currencies. This makes our imports 20% more expensive.

Gordon Brown WILL be printing lots of new money this year, though he's removed the requirement from the BoE to publish just how much they are printing - can't think why. This will further increase inflation as the pound devalues further and our imports get even more expensive.

The mad scrabble to discount goods in retail stores before Christmas and in the January sales was only a short-sighted temporary measure, and will not be sufficient to decrease what promises to be pretty high inflation this year.

MOST importers of goods (that's wholesalers too) have already jacked up their wholesale prices by, on average 20% in January. By the end of January, you will see many, many high street retailers passing that on to customers.

It IS going to be a tough year, and inflation IS going to be rather high, despite even the deflationary pressures of the housing market.
 
#2
Biped said:
BBC

UK inflation is tipped to show a sharp fall when official figures for December are released later.

Analysts polled by Reuters expect the Consumer Prices Index to have dropped sharply for the month, to an annual rate of 2.7%, from 4.1% in November.

The headline Retail Prices Index rate of inflation is predicted to drop below 1%, from November's annual rate of 3%.

Many economists expect the inflation rate to continue to slide in 2009, prompting fears of deflation.
Now, I'm not sure where they are getting this information for 2009. After everything that has gone on in the last year, with all the talking heads and 'experts' giving us the low down on how the value of the pound has been shattered, and how we have this huge trade deficit with the rest of the world for white goods, cars and more.

Quick heads-up on that news story - it's a load of politically inspired twaddle.

We DO import most of our goods.
The pound HAS shattered in value by, on average, 20% against most other currencies. This makes our imports 20% more expensive.

Gordon Brown WILL be printing lots of new money this year, though he's removed the requirement from the BoE to publish just how much they are printing - can't think why. This will further increase inflation as the pound devalues further and our imports get even more expensive.

The mad scrabble to discount goods in retail stores before Christmas and in the January sales was only a short-sighted temporary measure, and will not be sufficient to decrease what promises to be pretty high inflation this year.

MOST importers of goods (that's wholesalers too) have already jacked up their wholesale prices by, on average 20% in January. By the end of January, you will see many, many high street retailers passing that on to customers.

It IS going to be a tough year, and inflation IS going to be rather high, despite even the deflationary pressures of the housing market.
Except that inflation figures includes the import cost increase. Given the need of foreign producers to cut back on their profit margins to retain custom, and the fact that the Euro is going to go down like a Russian submarine over the next six months, the net increase in import costs will be negligable anyway.
 
#3
I'd be interested on why you think the Euro is going to go south parapauk?
 
#4
Ord_Sgt said:
I'd be interested on why you think the Euro is going to go south parapauk?
The 'PIGS' economies - Portugal, Ireland, Greece and Spain, are in far more trouble than we are - Spain is looking at 25% unemployment soon. They'll either have to massively renegotiate the terms of Euro membership, or leave, if they fancy a recovery. Remember what the ERM did to us? Either way, I can't see confidence in the Euro holding long term.
 

Biped

LE
Book Reviewer
#5
I think that all depends on whether the pound continues to slide too - it's just plummetted again after the latest RBS and other banking news, and the BoE hasn't begun printing £1,000,000 notes yet.
 
#6
Ord_Sgt said:
I'd be interested on why you think the Euro is going to go south parapauk?
It is a widely held belief that trade and financial figures from many of the other EU members (which are released later that the UK’s) will show they are in as bad a, if not worse, position as the UK. It would also appear that there is a lot of pressure on the European Bank from many member states, particularly those that derive a large part of GNP from tourism, to devalue the Euro. A few states are even talking about leaving the Euro although that is probably political bluster rather than political fact.
The fact is that the pound has already started a recovery against the Euro and many foresee an even greater recovery once all the financial statements are published.
 
#7
UK inflation will come later; not this year, but starting slowly just before the next election in 2010 (Brown definitely hasn't got the nuts to call an election this year, while he's behind in the polls and people are starting to blame him).

Remember that a £1,000,000,000,000 debt is forever, and rushing to print money this year (as opposed to next) isn't important in the grand scheme of things. Five or six % inflation for the five years of the next parliament will wipe nearly a quarter of the value of this debt away, so why worry?

But if you were thinking of selling your house to pay for your retirement, or emigration to somewhere sunny and a little more civilised, then tough.
 
#8
Well the Euro was steady at about $1.59 last year - now at $1.29 and falling steadily.

Not as fast as the pound of course but still struggling. The Euro has much the same problems as the pound, too many of the big countries have borrowed heavily and believe in current myth of buying yourself out of trouble. In many ways, the Euro is more vulnerable because interest rates can't be moved quickly enough to react and because the one shape fits all policy plays havoc with some economies. Some smaller countries are teetering on crashing out of the system (known by some as the PIIGS). If that happens, confidence in € will be shattered but it is unlikely investors will buy into the pound, the greenback will look safer. No logic in this belief in the $ but this is high level gambling/investment we are talking about - it is all about confidence not necessarily economics.

Never mind Euro/pound parity. How long before we get dollar parity?

Edited to add: must type faster
 
#9
What they really mean is the essentials that doubled in price in the back end of 2007 (when they were busily massaging the figures to show that they hadn't), whilst they haven't come down, they haven't actually gone up either. Smoke and mirrors, as usual.
 
#10
Markintime said:
Ord_Sgt said:
I'd be interested on why you think the Euro is going to go south parapauk?
It is a widely held belief that trade and financial figures from many of the other EU members (which are released later that the UK’s) will show they are in as bad a, if not worse, position as the UK. It would also appear that there is a lot of pressure on the European Bank from many member states, particularly those that derive a large part of GNP from tourism, to devalue the Euro. A few states are even talking about leaving the Euro although that is probably political bluster rather than political fact.
The fact is that the pound has already started a recovery against the Euro and many foresee an even greater recovery once all the financial statements are published.
And would you believe I'm about to start writing a chapter in my thesis about how economic integration doesn't work in states that depend on tourism!

The fact is that the UK is ahead of the curve, and that's why things look worse now than the facts present in six months time might suggest.
 
#11
Ahead of the curve or on a different and altogether steeper curve.

A good maxim to adopt in a crisis is to tighten belts and take the pain early but this government doesn't believe in that, they think it is better to borrow and pay it back later. Not a recipe most financial advisors would advocate.
 
#12
Herrumph said:
Snip... No logic in this belief in the $ but this is high level gambling/investment we are talking about - it is all about confidence not necessarily economics.
Never mind Euro/pound parity. How long before we get dollar parity?

Edited to add: must type faster
The USA is run by people who understand capitalism. Not only that, but they define what success is. Other systems (the Rhineland model, for instance) can't compete because the Americans decide what you have to do to be sucessful, and that rearely includes having a nice quality of life.

The UK is currently run by people who have never worked in a wealth-creating business (as I read recently, would you want Hazel Blears on the board of the company you work for?), and have no respect for those that do. This will improve if the Tories get in, but the Old Labour attitudes in key parts of the economy won't go away.

So, if you want to make sure that your money will have value in the long-term, buy dollars.
 
#13
Angular - I think the article you read also pointed out that the last Cabinet Member to be involved in real wealth creation was John Prescott.

Whilst I would like to thing the opposition might bring some more experience, the fact is that all of Parliament is becoming more dominated by teachers, educators, lawyers and worse of all the "party animal"
 
#14
Herrumph said:
Angular - I think the article you read also pointed out that the last Cabinet Member to be involved in real wealth creation was John Prescott.

Whilst I would like to thing the opposition might bring some more experience, the fact is that all of Parliament is becoming more dominated by teachers, educators, lawyers and worse of all the "party animal"
You're right. I think I'd suppressed that memory, as I like to do with anything to do with John Prescott. :x

Edited to add: Bollox, my 1000th post and it's about that fat lying obnoxious deceitful....
 
#15
'would you want Hazel Blears on the board of the company you work for?'

Whilst I agree, the appalling Patricia Hewitt (former Health Secretary) is a 'special consultant' to Alliance Boots and Cinven (both involved in healthcare) and is a non-executive director of BT. I believe, also, that Hillary Armstrong took a directorship related to her ministerial position. What these 'women of the people' are bringing to the party appears to be unclear, what they are really doing is feathering their nests before becoming unemployed at the next election.
 
#16
mnairb said:
'. What these 'women of the people' are bringing to the party appears to be unclear, what they are really doing is feathering their nests before becoming unemployed at the next election.

a politician putting their own interests ahead of the people that supported them !! I believe that is part and parcel of what almost all politicians do these days. They get blinded by greed and forget why they are there in teh first place.

Really grabs my goat and has done for a long time
 
#17
And who can believe inflation figures after Gordon has had his snotty mits on them. They are so unrepresentative of things we purchase on a day by day basis. They measure things like televisions FFS. Government said 3 months ago that food inflation would fall off sharply, but food inflation still rising. These figures have been made up by the 2.5% cut in VAT and not much else, so the figures have been gained on the basis of a £12.5Bn subsidy which has yet to be paid for.

Britain is worst place of the G20 economies to ride this storm out, unemployment figures will be increasing by 2 or 3000 per day for the foreseeable future. Additionally there will be an impact on the exchange rate as the pound is so weak against the major currencies like the dollar and euro.
 
#18
bobthedog said:
And who can believe inflation figures after Gordon has had his snotty mits on them. They are so unrepresentative of things we purchase on a day by day basis. They measure things like televisions FFS. Government said 3 months ago that food inflation would fall off sharply, but food inflation still rising. These figures have been made up by the 2.5% cut in VAT and not much else, so the figures have been gained on the basis of a £12.5Bn subsidy which has yet to be paid for.

Britain is worst place of the G20 economies to ride this storm out, unemployment figures will be increasing by 2 or 3000 per day for the foreseeable future. Additionally there will be an impact on the exchange rate as the pound is so weak against the major currencies like the dollar and euro.
Cant wait for the Annual service pension rise. Enough to buy another cup of coffee per week.
 
#20
It's difficult not to feel a sense of foreboding, such is the bleak outlook for UK plc. Thanks Gordon, Fred and all your incompetant friends. We and our children will be clearing this mess up for many years. The key point is that the debt to GDP ratio has become unsustainable. The way to correct this is to lower it to a level that is manageable and to work it down.

It will likely require a combination of inflation and debt reduction by bankruptcies and writedowns in order to restore the economy to something which can be used to achieve a balance.

While we're here, might I offer Mr Goodwin this advice, get one of these to travel around in - you're going to need it, http://www.myconfinedspace.com/?attachment_id=63086

The RBS and its barely comprehensible loss signaled the end of an era. The days when finance was the engine of the UK economy are definitively over. The UK banking sector has become the 21st century equivalent of coal mining; over- staffed, over-paid, and profoundly unproductive. RBS's loss is equivalent to 2 percent of GDP. Think about that; one bank in just one year lost 2 percent of national income. Moreover, the bank's balance sheet is almost as large as the UK GDP. This is a bloated and obese behemoth. It can not survive in its present distorted condition. Everyone knows it and that is why the share price collapsed

What is true of the RBS is also true of all UK banks. They are too big; they employ too many people and their funding model is unsustainable. No amount of government intervention can negate that reality. The government may have access to our collective handbag, but we as a nation simply don't have enough money to cover up the losses of our banks.

So what happens next? The government will continue to prop the banking system with liquidity. Whatever Brown and Darling might say in public, they now have the minimalist objective of preventing total collapse. It is simply inconceivable that lending could return to the 2007 levels. The heady days of near limitless credit growth have gone. The government would be doing well if it simply avoids another financial sector meltdown.

The UK banking system is going to have to shrink. The only question is whether this will be an orderly process. As the system goes into terminal decline, asset prices are going to adjust to a new and much lower equilibrium. Houses, commercial property, art, and football teams are all about to get a lot cheaper. This adjustment will be very unpleasant.

Leverage is dead, PE is dead, look for a coming wave of goodwill impairment downgrades by brokers, goverment salaries will fall, sterling is getting blasted and whole tranches of the service economy are going to have to get real. The only thing that I can confidently predict will rise will be comedy, just like the seventies because thats where we're heading.

What about the real economy? This too will adjust, and it will be painful. Th bulk of the adjustment will be in financial services, which has just begun to shake out all that value-reducing labour that created this appalling banking crisis. Currently, the sector employs about 6 million people. Don't be surprised if that number falls by half.

Over time, these people will find new and productive forms of employment. Wage rates will adjust downwards, and the UK manufacturing sector will slowly revi after years of neglect. The UK economy will again start to make things.

Eventually, the economy will start to grow and we will recover from the terrible wounds inflicted upon us by our banks.

Markets are signalling potential soverign downgrades,

Item one: Spanish public sector debt has just been downgraded. No more triple AAA.

Item two: UK bond prices have fallen sharply, which is equivalent to saying UK interest rates went up. Markets have just woken up to the fiscal risks of unlimited bank bailouts. Just how far is the UK away from a rating downgrade? Too close for comfort, I'd say.

Item three: There is talk in Ireland of leaving the euro. Irish exports are being crushed by that extremely unfriendly sterling devaluation. There is a whiff of default wafting around Ireland right now.

So, sorry to rain on anyone's parade but markets are going down along with just about everything else you can think of except for unemployment and eventually inflation. It doesn't matter who you are, you will be impacted. Batten down the hatches and plan for financial survival - the outlook is very grim indeed.
 
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