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Fears For Uk Growth As Inflation Sabotages Austerity

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http://www.telegraph.co.uk/finance/economics/8322010/Fears-for-UK-growth-as-inflation-sabotages-austerity.html

Surging inflation is beginning to damage Britain's growth prospects as markets insure against rising prices by charging more for credit.

Traders have warned that inflation is undermining the work done by the Coalition's austerity measures to keep interest rates under control. The yield on 10-year gilts has jumped half a percentage point since the start of the year and a whole percentage point since September to 3.87pc, escalating the cost of raising new Government debt.

Justin Knight, head of European rate strategy at UBS, said: "What has been driving UK yields is the prospect or risk of inflation, which has to be priced in. There are distinct concerns about inflation."

Official data for January, released on Tuesday, is expected to show inflation has soared above 4pc – more than twice the Bank of England's target level and the highest rate since 2008. The figure, which follows a shock rise in the December rate to 3.7pc, will bounce Mervyn King, the Bank's Governor, into writing a fifth successive letter of explanation to the Chancellor.

According to the Office for Budget Responsibility, a one percentage point increase in gilt yields will add £15bn to the cost of financing the public debt over the next five years – equivalent to 11pc of the total austerity measures. In 2015 alone, the cost would be £68.4bn against current forecasts of £63.1bn.

UK inflation is running at almost twice the rate as that on both the Continent and the US, as the weak pound has pushed up the cost of imports. A spike in global commodity prices, for oil and food in particular, has also fuelled price growth, as well as the VAT rise from 17.5pc to 20pc.

Despite soaring inflation, the Bank has left rates unchanged at their record low of 0.5pc for two full years. The Bank will explain its policy on Wednesday in its quarterly Inflation Report. The Governor has long argued that, excluding imported and one-off cost pressures, "inflation is close to zero and well below target".

Mystic Merv and his perpetual one-off cost pressures.

I'm just glad they've got it all contained. So if interest rates go up because of market pressures that would imply the only funding source which will be open to UK banks will be the BoE?

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GDP is much over rated. I would rather have the money in the bank. Ask the Chinese.

Yes, if everyone stuffed their entire pay packet into savings, we'd be so much better off..

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Nothing to worry about, its just an article in the Telegraph. So everyone will ignore it for about a year to 18 months and then panic like they never expected it.

UK 2010 only acknowledges reports or opinions from sources that have been approved by The Guardian/Labour Party.

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Over 4% would be somewhat alarming. Although in fairness to Mervyn King, if 2.5% of the 4% is simply the raising VAT.. that is not something that has anything to do with monetary policy.

If the rate with the VAT increase stripped out is 1.5% that is below target.

The Tories talk as if they are the economically aware party, but I've never heard of raising taxes in a recession being a good idea.

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Over 4% would be somewhat alarming. Although in fairness to Mervyn King, if 2.5% of the 4% is simply the raising VAT.. that is not something that has anything to do with monetary policy.

If the rate with the VAT increase stripped out is 1.5% that is below target.

The Tories talk as if they are the economically aware party, but I've never heard of raising taxes in a recession being a good idea.

If we strip food out of the equation it would be even lower. In fact if we just include everything where the price is going down the inflation figure would look far better.

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If we strip food out of the equation it would be even lower. In fact if we just include everything where the price is going down the inflation figure would look far better.

now that's a plan

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If we strip food out of the equation it would be even lower. In fact if we just include everything where the price is going down the inflation figure would look far better.

I thought they already did this. And it's still going up!

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Over 4% would be somewhat alarming. Although in fairness to Mervyn King, if 2.5% of the 4% is simply the raising VAT.. that is not something that has anything to do with monetary policy.

If the rate with the VAT increase stripped out is 1.5% that is below target.

The Tories talk as if they are the economically aware party, but I've never heard of raising taxes in a recession being a good idea.

Going bankrupt and calling the IMF in is not too good for an economy as well.

They have raised indirect taxation yet for low earners reduced direct taxation (rasing the tax free limit on earnings). So to say they have just raised taxes is not the whole story, they are also lowering corporate taxes as well.

Edited by ralphmalph

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Vince Cable reckons our our infation is "virtually deflation".

http://www.bloomberg.com/news/2011-02-14/cable-sides-with-boe-doves-on-inflation-calls-rate-increase-difficult-.html

Cable Sides With BOE `Doves,' Calls Rate Increase `Difficult'

U.K. Business Secretary Vince Cable said he shares the analysis of the “doves” on the Bank of England’s Monetary Policy Committee, saying an interest-rate increase is “potentially very difficult.”

“As an outsider looking in, I take the view of the doves,” Cable said in a Bloomberg Television interview airing today. “Although you have inflation, it’s almost entirely imported. There’s not very much evidence of British inflation taking place. It’s virtually deflation.”

Cable, a Liberal Democrat member of the Conservative-led coalition, spoke before January inflation figures that probably showed consumer prices rising 4 percent, the most since November 2008, according to the median forecast of 30 economists in a Bloomberg survey. The Office for National Statistics in London will publish the data at 9:30 a.m. tomorrow.

The comments by Cable reflect the risks the government is taking by enacting the biggest fiscal squeeze since World War II with inflation holding above the Bank of England’s 2 percent target for 14 months. Tightening monetary policy to contain prices could push the country back into recession after the economy contracted in the final quarter of 2010.

“You would normally expect it to be offset by loose monetary policy,” Cable said of the government’s plan to narrow the deficit. Tightening both sides at once was “potentially very difficult.”

The pound rose as much as 0.4 percent to $1.6078 and was little changed at $1.6008 as of 8:49 a.m. in London.

The bank left its key interest rate at a record low of 0.5 percent last week and its bond-purchase plan at 200 billion pounds ($320 billion). Governor Mervyn King will present new quarterly economic forecasts Feb. 16.

Prime Minister David Cameron said Jan. 10 that King had “a difficult task” in judging how much inflation was internal and how much was external. He added that the current level was “concerning.”

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If we strip food out of the equation it would be even lower. In fact if we just include everything where the price is going down the inflation figure would look far better.

I understand with food and commodities people are buying directly like oil. But a sales tax increase I do not think should be factored in.

For example imagine I became supreme ruler and cut the VAT by 5%. The 4% inflation would drop to negative 1% inflation. And then I could argue we need additional QE to hit the 2% inflation target.

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I would also add more controversially you have to be careful with imported costs based on the fluctuation of the currency. World currency markets are so volatile nowadays that a currency can move 15% in a year. One way or the other.

Like wise if your currency rises 15% it can appear inflation is under control, when underneath the surface its the cheaper import prices which are masking inflation.

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  • 312 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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