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Energy Hikes 'threaten Inflation'

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Bank of England governor Mervyn King has said continuing high UK energy prices will force up inflation, and could pose a threat to the economy.

He said recent rises in UK prices would push short-term inflation, erode the buying power of household incomes and slow the growth of consumer spending.

Mr King told MPs efforts to obtain gas supplies for the UK were being hit by a lack of competition in mainland Europe.

High energy costs are a main reason UK interest rates have stayed at 4.5%.

Mr King said the Bank of England's Monetary Policy Committee (MPC) had kept interest rates steady because there were risks to its inflation forecast on both sides.

"A major risk to the outlook for growth and inflation comes from energy prices," he said.

"Past increases in oil and gas prices may have eroded the supply capacity of the economy and altered the balance between demand and supply."

Capacity issues

At present, there are low levels of gas running through the interconnector pipeline from Belgium to Norfolk - at a time when a fire had damaged the UK's biggest gas storage facility and capacity elsewhere was tight, Mr King said.

Energy suppliers, including British Gas, have now put up household bills well above the rate of increase in consumer prices.

The Office for National Statistics reported earlier this month that consumer prices rose 2.0% in February, up from 1.9% growth in January, but below the recent peak of 2.5% in September.

Mr King told the House of Commons Treasury Committee there was not "a great deal of spare capacity in the UK economy", even though it might seem that the general picture for the economy was "remarkably benign".

He said that the Bank's projection for UK economic growth appeared "pretty plausible", despite the fact that its forecast looked stronger than those from economists.

The Bank of England has forecast economic growth to pick up to about its 2.75% trend rate by the middle of 2006, and move above trend in early 2007 before falling back slightly.

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merv king has a habit of warning the public just before he intends to adjust short term interest rates, could he be pushing for a hike to match the FED's within the next few months

me thinks so

Edited by crash 2005

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I dont see how energy prices can contribute to inflation, oil costs have gone up masses over the past year and the Governments inflation figures show everything is on course. We dont have high inflation :D:D:D

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It's really confusing having two users - 'homeless' and 'STR2004' - with the same avatar. Especially when one is a bear and the other a bull, respectively.

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He said recent rises in UK prices would push short-term inflation, erode the buying power of household incomes and slow the growth of consumer spending.

Well done Mr King. He's finally acknowledged what I realised was having a noticable effect on me more than a year ago :rolleyes:

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It is rather amazing how inflation has stayed exectly on target at 2.4% while everything else is shooting up in price. The massive rise in ultiltiy bills and other costs clearly show that cost push inflation is well over 2% even doing a basic calculation on the amoutn people spend. I guess the mask is slipping a little.

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"Mr King told MPs efforts to obtain gas supplies for the UK were being hit by a lack of competition in mainland Europe."

The man is a fool. It is the consequences of privatisation that have contributed to our problems. The gas system is one machine and has to be integrated and coordinated as one machine from well to cooker. Privatisation has broken it up into many different chips of responsiblity, causing loss of overall system effectiveness - the lack of emergency storage being but one example, the waste of gas in power stations being another, the spiralling cost of new gas connections being yet another. King is a typical dumb banker, and in a wider sense has the kind of mantra-laden commercialised, technically ignorant mind of most of the British financial and managerial elite. There are some exceptions, and those exceptions are contemptuous of the "City" attitudes. They are quite folk like John Bloor who get on with it, keep their companies private and out of the hands of the bloody City.

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It is rather amazing how inflation has stayed exectly on target at 2.4% while everything else is shooting up in price. The massive rise in ultiltiy bills and other costs clearly show that cost push inflation is well over 2% even doing a basic calculation on the amoutn people spend. I guess the mask is slipping a little.

I don't think it's that amazing. it's a simple case of fiddling and lies, that's all... The ONS reducing the weightings given to soaring costs such as energy, while increasing the weighting given to stagnating costs such as new cars, and adding things like MP3 players to the basket, which are, effectively plummeting in cost as the technology advances and gives you so much more for your money than was possible only a short while ago... Example – Three years ago: 10GB iPod = £319 (£31.90 per GigaByte). Today: 60GB iPod = £299 (£4.98 per GigaByte). That's 84.2% deflation!!!

Real life cost of living inflation is massive. Three years ago the collective cost of my gas, electricity, water, council tax, food, TV license and phone bill was £300 a month. Now it's £434. That's a 13.1% year on year increase.

The fact is that the ONS should not be decreasing the weighting of things like energy, but increasing it, because, as energy costs soar, we have less money left to spend on other things, so energy costs become more heavily weighted within the household budget, and therefore should too within the ONS's calculations.

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It is rather amazing how inflation has stayed exectly on target at 2.4% while everything else is shooting up in price. The massive rise in ultiltiy bills and other costs clearly show that cost push inflation is well over 2% even doing a basic calculation on the amoutn people spend. I guess the mask is slipping a little.

CPI = Chav Price Index

You need to buy more MP3 players, **** t-shirts and bottled lager in nightclubs brainclamp.

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You need to buy more MP3 players, **** t-shirts and bottled lager in nightclubs brainclamp.

For therein lies the secret of a successful post industrial consumer economy reaching for the Nirvana of the Third Way to a Socialist Utopia.

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For therein lies the secret of a successful post industrial consumer economy reaching for the Nirvana of the Third Way to a Socialist Utopia.

That and endlessly spiralling amounts of finance... no i mean credit... no, that's not the word... was it equity release.... hang on - Debt! Yes, that was the one.

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Example – Three years ago: 10GB iPod = £319 (£31.90 per GigaByte). Today: 60GB iPod = £299 (£4.98 per GigaByte). That's 84.2% deflation!!!

Yes I like it... 84.2% less for 10Gb iPod. That is £50.40 ... for a the iPod... WHERE? i can buy it??? :blink:

P

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Homeless' words (I think) "Bank of England governor Mervyn King has said continuing high UK energy prices will force up inflation, and could pose a threat to the economy."

King is quoted as saying :

"A major risk to the outlook for growth and inflation comes from energy prices," he said.

"Past increases in oil and gas prices may have eroded the supply capacity of the economy and altered the balance between demand and supply."

+ Question is King using "Greenspan talk". Is he saying that the higher energy prices go the lower the CPI figure will go? We all know that the CPI has flaws - I'm not arguing the toss. But effectively is he saying that people's incomes are going on "energy" rather than consumables (DVD players)?

If so he is saying that rising crude, gas etc prices are, in the current environment (ie wage inflation not keeping pace with commodities) deflationary?

consider the next paragraph as per Homeless' post:

"High energy costs are a main reason UK interest rates have stayed at 4.5%.

Mr King said the Bank of England's Monetary Policy Committee (MPC) had kept interest rates steady because there were risks to its inflation forecast on both sides."

Does it now seem to say something else.

My take, as it has been for some time, is that we stand at a high inflation vs deflation cross roads, one path or the other will destroy the debt bubble.

Those who figure out which path we will take and invest for the right scenario will prosper. Those on the wrong path will perish.

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These "energy hikes" are going to have a much bigger impact than people realise.

Its not just 'petrol' and 'turning the cooker on' that are gonna become more expensive.

On a slightly different point - people on HPC are savvy enough not to accept figures handed down by VIs in the property industry.

Why do they accept them from VIs in oil and energy?

The current energy situation - declining reserves and regional instabilities - has the potential to make a HPC look like losing 50p down the back of the sofa....which is what it is, really.

See if you can spot where GB is sneaking this into the NuLabour budget lingo......

(Then) High levels of Government Spending (bad) - (Now) High levels of Government Investment (good)

(Then) Lots of Debt (Bad thing) - (Now) Lots if Credit (Good thing)

(Then) Need use less Oil (Bad) - (Now) Need to reduce Carbon Emissions (good thing)

Edited by needle

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Indeed, this is quite a conundrum...

To be perfectly honest, I remain uncertain as to which way it will go at this juncture. My preference would be that we deflate our way out, though I remain undecidedly cautious given the fact that politicians have a nasty habit of opting for the easier and quicker route, that of inflation.

On the one hand, headline inflation is on the up, even though core seems relatively benign according to official figures. Whilst on the other, the prospect of a global housing bust and consequent slowdown in the world's economy, would suggest deflation to be inevitable.

Who d'you trust or believe for that matter? Perhaps it all depends on what happens next before those in a position to act, decide to make their final move(s)? Or has the die already been cast and it's up to the rest of us to decipher?

Does it all boil down to who d'you shaft? The bondholders or the banks and other derivative holders? The first option preserves the currency and does not result in inflation. The latter serves the banks and debt laden masses.

To date, and taking the FED at face value, I would say that they're striving to print more money to pay off the bondholders whist raising reserve ratios in order to facilitate credit tightening thus directly limiting further bank loans.

Such action coincides with the hiding of M3 data and rate rises that we're currently witnessing. Nevertheless, why can't I help feeling that politics will again intrude at some stage, and a reversal of fortunes will ensue...

As to what us Brits are up to? The jury's still out as far as I can see, and politics is definitely getting in the way of things what with Blair and Brown doing their best impressions of Sniffy and Scratchy.

One final question. Are our European cousins playing with the straightest bat of all by setting up road blocks before headline inflation manages to get past and head for the hills? If so, what can the Brits derive from this, if anything?

A conundrum Indeed.

I don't think it will boil down to anyone being shafted as such. Interest rates / credit tightening/losening will be set by the market / participants rather than cental banks, who can't impose much at all. (perhaps only overnight rates and have influence on public bond rates.)

Considering deflation : They would not be able to print the money needed fast enough to stave of deflation if the bubble pops by defaulting on loans / paying back loans / saving more / spending less etc. They are powerless to enforce borrowing , they can only encorage it by cutting rates and printing money. But if banks see lending as risky, and borrowers think likewise then the money supply will effectively plummet. And the lending banks, not central banks, will set the rates for any practical purpose.

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lack of competition in mainland Europe.

LOL fab - yes there's a lack of competition amongst people supplying gas - the sooner the UK deals with this the better.

And I suspect we'll have short term and long term inflation figures being bought into confuse people more - if they can say current huge increases in fuel prices exist BUT its a short term inflation thing then the long term inflation figure will be unaffected.

Its all about how to fiddle the figures and they know people can see through the low inflation figures because of the massive gas increases.

Expect much more spin.

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the inflation figure is incredible when you hear that rises in council tax have beencapped at 4.5% or whatever the number is

when they are calculating the figure, does anyone know if they adjust it based on the proportion of household income spent on it i.e. if i spend 1/15th of my income on council tax but 1/100th on an iPod is that reflected? probably not

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  • 301 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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