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High Inflation Could Have 'diastrous Consequences' For Uk, Economists Warn

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http://www.telegraph.co.uk/finance/economics/8575966/High-inflation-could-have-diastrous-consequences-for-UK-economists-warn.html

A number of prominent economists have claimed inflation could be an easy path to fiscal sustainability by trimming the debt pile without inflicting extreme spending cuts on the country and by letting house prices normalise without triggering a damaging crash.

Some even believe that the Bank of England is operating a tacit high-inflation policy, having overshot its 2pc target for 51 of the past 60 months.

The pain on households is not having a counterbalancing effect on the public finances, Capital Economics warned.

"Higher inflation would not be as helpful in reducing public sector debt burdens as is often assumed," the consultancy said. "[it] could have disastrous consequences."

As current inflation pressures are largely commodity-based, high prices "reduce consumers' incomes and therefore demand". As a result, households' effective mortgage payments rise and economic growth may falter – leading to reduced tax revenues, Capital Economics said.

High inflation may also lead to more expensive interest rates for the private sector as markets seek to protect themselves against rising prices.

At the same time, the consultancy claimed the UK is the least well-placed of seven major developed economies – including the US, Germany, Japan and France – to take advantage of soaring prices because a fifth of all Government debt is inflation-indexed.

With welfare payments also linked to prices, high inflation makes it more difficult to cut the budget deficit.

"A terms of trade shock, which is what this is, will boost CPI inflation without necessarily having the effect of bringing in more revenue to reduce the deficit," it said.

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It does my head in when so-called experts blame high commodity and import prices but don't blame low interest rates, which weakened the pound, which lead to high import prices!! Bah!!

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What a bunch of clowns we have at the BOE. Why are they not doing their job regardless of the consequences to a section of society, i.e the ones who thought "house prices only ever go up."

If anyone actually believed this, then they don't deserve to be saved imo. Financial cripples, the lot of them.

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What a bunch of clowns we have at the BOE. Why are they not doing their job regardless of the consequences to a section of society, i.e the ones who thought "house prices only ever go up."

If anyone actually believed this, then they don't deserve to be saved imo. Financial cripples, the lot of them.

The govt may as well trade mark this slogan as in the UK nothing else matters. The entire economy may be burning down but so long as house prices, and the stock market for that matter, are going up, then apparently all is well.

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The govt may as well trade mark this slogan as in the UK nothing else matters. The entire economy may be burning down but so long as house prices, and the stock market for that matter, are going up, then apparently all is well.

The US is just focussed on ensuring the stock market always goes up.

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"Bears do toilet in woods" and "Pope is catholic" economists warn.

These guys are good. Someone should ask them what the effect would be of a nation, or most of the western world, being saddled with too much debt.

Should they:

a ) borrow more to sustain their lifestyles

b ) try to pay off their debts and live more sustainable lifestyles

c ) bury their heads in the sand and ignore reality

Edited by MC Fur Q

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It does my head in when so-called experts blame high commodity and import prices but don't blame low interest rates, which weakened the pound, which lead to high import prices!! Bah!!

This one baffles me too (edit, well, not really, it's corruption). The high prices are intentional and avoidable. At least to the extent that we are seeing them.

Edited by cica

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The govt may as well trade mark this slogan as in the UK nothing else matters. The entire economy may be burning down but so long as house prices, and the stock market for that matter, are going up, then apparently all is well.

The footsie at 5800 against it's 1999 peak of 6999 is hardly a success story. House prices would not have been chased up so relentlesly had better stock market returns been available. The BTL disease sapping the life out of this country may have been avoided.

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The govt may as well trade mark this slogan as in the UK nothing else matters. The entire economy may be burning down but so long as house prices, and the stock market for that matter, are going up, then apparently all is well.

Spot on!! :rolleyes:

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OK, devils advocate here.

The UK has imported more than it has exported for decades, much like the USA.

Unlike the USA, it is difficult to explain on this basis why the pound is worth anything at all, my guess is it has to do with hot global funnymoney (suggestions please).

To make the nation competitive as a manufacturer and exporter the pound needs to drop, along with the general standard of living.

I see this as one of the goals of the BoE, or at least a cover story for proping up the banks and postponing the calamity they have colluded in creating.

Don't get me wrong, I want interest rates to rise hard and fast.

But that arrises from a purely selfish standpoint and the fact that I wish ill on the majority of my compatriots.

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Inflation can take away debts, like it did in the 1970's.

But to be really effective, you need real underlying growth. I am not so sure that our economy is growing much if at all. If it goes backwards, then linking benefits to inflation only encourages people to opt for benefits, causing growth to decline even more.

And that daft state pension promise the tories made guarantees ever increasing taxes for the working people as well. I think that the government needs to reconsider the policy here.

High inflation also makes it difficult to trade, you dont want to trade in a currency whose value is not stable, and without trade there is no economy.

What we need is growth. That means improving the after tax and benefits of those working in the private sector relative to everyone else, to encourage that behaviour. Not much evidence that the working private sector 25 year old is being put first from what I can see.

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Bottom line: our greed and overspending that manifested itself most in a massive housing bubble that is about to deflate will be painful.

Whether the deflating bubble manifests itself in inflation or deflation there will still be no free lunch.

If its inflation savers lose and the idebted gain. If its deflation the savers win and the indebted lose.

When the market CORRECTS which will it be? More of the same or a correction going the other way?

Edited by Realistbear

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Inflation can take away debts, like it did in the 1970's.

Only if you can get hold of more of the tokens whose 'value' is being eroded.

The elite have done such an excellent job of suppressing wages that the 'inflate away the debt' strategy seems a bit dated today- the mechanisms that created wage inflation back then are not likely to work as well now, in the globalised world cheap labour and fast money.

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What a bunch of clowns we have at the BOE. Why are they not doing their job regardless of the consequences to a section of society, i.e the ones who thought "house prices only ever go up."

If anyone actually believed this, then they don't deserve to be saved imo. Financial cripples, the lot of them.

They are doing their job, which is to make sure rich people get wealthier.

The official secrets act protects the names of the shareholders of this private company but I would guess it doesn't include "Joe Public".

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BUt surely they mean deflation

Exactly, that's the real danger.

I cry myself to sleep every night worrying about it.

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Whether the deflating bubble manifests itself in inflation or deflation there will still be no free lunch.

Surely there can be no doubt in your mind that "deflation cometh"?

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Inflation can take away debts, like it did in the 1970's.

But to be really effective, you need real underlying growth. I am not so sure that our economy is growing much if at all. If it goes backwards, then linking benefits to inflation only encourages people to opt for benefits, causing growth to decline even more.

And that daft state pension promise the tories made guarantees ever increasing taxes for the working people as well. I think that the government needs to reconsider the policy here.

High inflation also makes it difficult to trade, you dont want to trade in a currency whose value is not stable, and without trade there is no economy.

What we need is growth. That means improving the after tax and benefits of those working in the private sector relative to everyone else, to encourage that behaviour. Not much evidence that the working private sector 25 year old is being put first from what I can see.

no it cant, at least not till the helicopter arrives because unlike the 70s the debt is private not public, although that may change with the banking nationalisations

Edited by georgia o'keeffe

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But they said QE done once or twice will not cause inflation we were told that every day and now they are telling us inflation runnign high is bad, yes we know that but where did it come from was it QE :lol:, but but.... QE will not cause inflation run run wild :lol:

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  • 311 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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