Inflation Is Rising And They Talk Of Ir Cuts?

[Pluto]

Well folks, it looks like we're going to heading into uncharted territory. Oil prices spiking on a daily basis, inflation on the up and up. Now they're mumblings about another interest cut. Sterling's tanking on the news making oil even more expensive.

I smell a recession coming. It's going to a miserable Xmas for all.

[right_freds_dead]

i think there may be enough steam left just to cover one more christmas card splurge and thats that.

next stop 2008/9

[Elizabeth]

I smell a recession coming.  It's going to a miserable Xmas for all.

<{POST_SNAPBACK}>

Na. Just warm the egg-nog, pass out socks and enjoy what you've got! (EEK. No Playstation for the little darlings? Yes it could be hell!!)

I predict Carols by Candlelight might make a renaissance this year. Candles don't cost much!!!

[right_freds_dead]

i predict a riot...

[OzzMosiz]

i predict a riot...

<{POST_SNAPBACK}>

Kaiser Chiefs knew all along!!

I am absolutely knocked for 6 regarding talk of IR cuts. These people are fricking idiots!

[benjamin]

Don't get your hopes us of anything drastic; it's wishful thinking. Just more spin, smoke & mirrors, more bleating, more blaming etc.. We may get an IR cut, but so what. Next year is the one to watch. If the 2nd spring bounce fails to materialise as more and more bearish media appears, then it will get interesting.

[Red Baron]

Today's UK economy resembles a table tottering on three broken legs.

It is based on little more than selling each other our homes at ever more inflated prices, and an extended credit card binge on imported goods from China and elsewhere. The creation of 'real' wealth, by the production of goods and services that we can sell to the rest of the world, has been sacrificed on the altar of a self indulgent, debt-fuelled, spending spree that must be the biggest and longest in this country's history. Meanwhile the new service industries, those trumpeted by Thatcher as the future for the UK, wither and migrate overseas to well educated but lower paid workers.

I think the UK is in for a grim few years when this unsustainable bubble finally implodes.

Edited September 15, 2005 by Red Baron

[MarkG]

I think the UK is in for a grim few years when this unsustainable bubble finally implodes.

Indeed. I think I'll be shifting the rest of my cash abroad tomorrow: I'd been hoping that the US economy would fall faster than ours, but looks like we'll be leading them down.

[BuyingBear]

Well folks, it looks like we're going to heading into uncharted territory.  Oil prices spiking on a daily basis, inflation on the up and up.  Now they're mumblings about another interest cut.  Sterling's tanking on the news making oil even more expensive.

I smell a recession coming.  It's going to a miserable Xmas for all.

<{POST_SNAPBACK}>

Indeed, if things rise too much just ignore them or strip them out the figures, the same is now happening with oil, look how they're now focusing on the 'core rate', lots of spinning going on there. Thank god they've now tweaked the figures, people will automatically have more money in their pockets.

Take the following BBC article the following isn't them quoting anyone, it's their own commentary, somebody is spinning them and they're presenting this as fact :-

The flat retail figures may mean the Bank of England has to cut rates once again, from the current 4.5% figure, to stimulate consumer spending.

Despite oil price rises pushing the August inflation figure to 2.4%, the "core" year-on-year inflation figure remains at 1.7%, giving the Bank some leeway to introduce another rate cut.

[Time to raise petrol prices]

Why are the great British public and, more importantly the media, obsessed with rate cutting? If a martian economist came down in his flying saucer and took a completely dispassionate view of the UK economy right now, his view would surely be one of stagnation at the absolute best, and later of substantial interest rate rises.

The housing market per se has nothing whatsoever to do with the Bank of England's mandate - their job is to control inflation, which they have already miserably failed to do with the degree of rampant, bloated price increases in the national housing stock over the last few years. Cheap borrowing rates have allowed the government to flog the job of providing slum accomodation to the credit card frenzied masses to the private sector too.

Why then are we still talking about cuts? I doubt we'll even see a 0.25pt cut in rates, given how deep we are in. If Merv voted against the cut last time, there's no way I see further drops now that the outlook is even more grim.

Edited September 15, 2005 by Time to raise petrol prices

[Zzzzzzzzzzzzzzzzzzzzzzzzzz]

My Bank Director Uncle has just informed me that "a 0.25% cut next month is a dead-cert - they decided that last week" :(though I'm not totally sure whether he is taking the p or not).

[BuyingBear]

Why are the great British public and, more importantly the media, obsessed with rate cutting? If a martian economist came down in his flying saucer and took a completely dispassionate view of the UK economy right now,  his view would surely be one of stagnation at the absolute best, and later of substantial interest rate rises.

<{POST_SNAPBACK}>

Basically we've got the cycles out of kilter, we gorged ourselves on low IR's when there was no justification for them being so low, the cuts to 3.5% were highly dubious, they seem to be aligned with political cycles more than economic ones.

The government has had a splurge of borrowing and spending when the rest of the economy was doing ok, and the tax for doing so acted as a drag, usually you run surpluses during the good years and pay down government borrowing and when things slowdown a bit and the consumer or business investment peters out govt investment takes up the baton.

Of course the government has been borrowing like mad during the good times, and now has the prospect of cutting back spending and raising taxes during a downturn, nasty, if you're going to be a Keynesian at least do it properly. It's like raiding the winter grain store and emptying it out by the start of autumn, then saying "well, lots of new grain was going in the summer, we thought this growth could continue forever, oh yeah, I also owe Fred 20 tons of grain too, he wants that back now".

Of course we're now in a position where rates have been kept aritically low so the cycle never completed, if rates were 6-7% there would be room for cuts without kicking off inflation or reinflating asset bubbles. They don't have that room for maneuver anymore because they're starting from such a low base, if they cut too much they're essentially below neutral, and what if that doesn't work? If the consumer is already borrowed to the hilt at 3.5% rates, well, where do you go from there? Do they want a deflationary cycle like Japan where real rates are negative.

Your hypothetical martian would understand the situation perfectly, he'd just wonder why we aren't wearing bellbottoms anymore, that would be the only difference between now and the 70's.

Edited September 15, 2005 by BuyingBear

[Bear Goggles]

Indeed, if things rise too much just ignore them or strip them out the figures, the same is now happening with oil, look how they're now focusing on the 'core rate', lots of spinning going on there. Thank god they've now tweaked the figures, people will automatically have more money in their pockets.

Take the following BBC article the following isn't them quoting anyone, it's their own commentary, somebody is spinning them and they're presenting this as fact :-

<{POST_SNAPBACK}>

It's interesting isn't it?

They're now stripping out oil and food to get 'the core rate' is there anything left in the core rate apart from DVD players?

I'm beginning to believe that we may face interest rates being cut into this downturn. Which I believe would be very foolish. Inflation for the average consumer is now totally out of kilter with the official data.

It'll be interesting to see how things play out over the next couple of months at the BofE if Merv continues to get out voted by Brown's stooges!

Be ready to protect your deposit (if you have one)

[kinesin]

My Bank Director Uncle has just informed me that "a 0.25% cut next month is a dead-cert - they decided that last week" :(though I'm not totally sure whether he is taking the p or not).

<{POST_SNAPBACK}>

Might be time to check if he's taking the p or not..

Betfair's odd are very good on 0.25% cut at 26/1 Note that betfair hasn't been wrong afaik, and is predicting no-change.

[BuyingBear]

It's interesting isn't it?

They're now stripping out oil and food to get 'the core rate' is there anything left in the core rate apart from DVD players?

<{POST_SNAPBACK}>

Out with utility bills too, of course council tax was never in there, the rebanding in 2007 will remove even more disposable income, but it's not measured so it doesn't count

If they wanted to create a path to stagflation with unstable asset bubles they couldn't have done things better. Business investment isn't happening, they don't see any value right now, so that's not taking up the baton from the consumer, and government has been spending like mad during the good times, so much so that government debt has now breached the Maastricht criteria and Brown's own 'Golden Rule', what leeway does that leave for investment in a downturn? Hrm.

Edited September 15, 2005 by BuyingBear

[farmerdring]

i have this theorey that 'minimum wage' actually just feeds through to inflation and no-one ends up better off.

what do ya reckon?

[Elizabeth]

Might be time to check if he's taking the p or not..

Betfair's odd are very good on 0.25% cut at 26/1    Note that betfair hasn't been wrong afaik, and is predicting no-change.

<{POST_SNAPBACK}>

William Hill aren't taking bets!

[BuyingBear]

i have this theorey that 'minimum wage' actually just feeds through to inflation and no-one ends up better off.

what do ya reckon?

<{POST_SNAPBACK}>

For private sector employees income after tax has fallen for nearly two years, in both nominal and real terms.

[farmerdring]

For private sector employees income after tax has fallen for nearly two years, in both nominal and real terms.

<{POST_SNAPBACK}>

that's pretty scary from a tax point of view given that wage inflation is around 4.5%

[BuyingBear]

that's pretty scary from a tax point of view given that wage inflation is around 4.5%

<{POST_SNAPBACK}>

Indeed, and the tax burden will rise in the next budget, combine that with higher inflation on basic items it doesn't look good for disposable income does it? Of course, we've been on this path for a while, credit card's and MEW'ing have just disguised or put off the day, people had more cash it just wasn't from wage income and now needs to be paid back.

[spiv]

Well folks, it looks like we're going to heading into uncharted territory.  Oil prices spiking on a daily basis, inflation on the up and up.  Now they're mumblings about another interest cut.  Sterling's tanking on the news making oil even more expensive.

I smell a recession coming.  It's going to a miserable Xmas for all.

<{POST_SNAPBACK}>

If the MPC are true to their word IRs will go up. It's a big if

Richard Lambert (MPC member) writing in The Sun today:-

"The aim [of the MPC] is to keep inflation on a steady path, along way from the days when inflation and interest rates jumped all over the place and unemployment soared.

We will still be hit by unexpected events and difficulties, but the Bank is determined to mantain low and stable inflation. For ever" (My emphasis)

spiv.

[Shamus]

I am amazed that the FTSE keeps going up. A couple of times it has stayed level but even with all the bad news coming out about the economy it manages to still rise. Is it simply being affected by the oil companies as they are big players in the index. So fuel rises and their profits go up?

[backtoparents]

I am amazed that the FTSE keeps going up.  A couple of times it has stayed level but even with all the bad news coming out about the economy it manages to still rise.  Is it simply being affected by the oil companies as they are big players in the index.  So fuel rises and their profits go up?

<{POST_SNAPBACK}>

Could be market factoring in a rate cut?

Anybody been following the bond yield curve?

from bloomberg

How long has it been this shape?

/G

[BuyingBear]

I am amazed that the FTSE keeps going up.  A couple of times it has stayed level but even with all the bad news coming out about the economy it manages to still rise.  Is it simply being affected by the oil companies as they are big players in the index.  So fuel rises and their profits go up?

<{POST_SNAPBACK}>

Indeed, remember that outside the retail sector that record profits are being recorded and being returned to investors through dividends and share buybacks, this is because the company see's no future opportunities worthy of investment. Business investment simply isn't occuring like it should during this stage of the cycle, hence the almost total reliance on the consumer and government spending.

BP and Shell account for over 20% of the index and are credited for the rise, once you add in BG and other energy stocks, plus the mining and natural resources companies it makes up a good chunk. The FTSE100 is a very defensive index by this measure.

[oracle]

If IR's are cut then that really tells you all you need to know about the state of the UK economy.

In short....it's going off the rails.

ever wondered why stock markets rise when interest rates do and vica versa....that's why.

gradually rising IR's are usually taken as a sign of confidence in a market.....japan has all this to look forward to and it's looking like a good call on my fund switch....up 500+ points on nikkei since changing....plus the bonus of currency conversion to come!