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U B S: U K Inflation At C P I 2.8% -- Worse To Come

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http://thebusinessonline.com/Stories.aspx?...2E-D07EB5AA1CEE

UK inflation set to reach highest level under Brown

By Allister Heath

06 August 2006

Top-up fees and gas price rises to take heavy toll on consumers
INFLATION is set to hit its highest level since Gordon Brown became UK Chancellor. Soaring energy costs and university top-up fees are to blame, a leading investment bank is warning this weekend.
The consumer price index
(CPI) will hit 2.8%
by the year’s end, the highest since December 1995, and the retail price index
(RPI) will peak at 3.9%,
the highest since May 1998, according to fresh forecasts by the Swiss investment bank UBS.
Amit Kara, economist at UBS and the author of the report, said: “Beware inflation, it is not just academic. University and
college fees in England and Wales are set to rise by around 250% in October
. Inflation on the RPI and the CPI measures will likely jump in October, and the effects are expected to persist for three years.”
...../
Robert Barrie, head of European economics, said: “It takes more than a quarter-point [rise in interest rates] to make difference to anything. The Bank’s model suggests it reduces inflation by less than 0.1%. On balance, we expect another 0.5 percentage points increase by the middle of next year.”
..../
T
he latest monetary data shows rampant money and credit growth in Britain
– up 13.7% and 14% respectively in the year to June, both 15-year peaks. The money holdings of non-bank financial institutions, a key link in the transmission of money growth into asset prices, are powering ahead – up 24.5% in the year to May, according to calculations from Lombard Street Research.
From September, the maximum
fee chargeable to a college or university student in England will rise by 250%
from £1,200 (E1,765, $2,256) to £3,000. The ONS is under growing pressure to announce how to account for this in the official statistics. It is likely to include it immediately from October, which would send inflation soaring by an extra 0.3 percentage points on the CPI index and 0.25 percentage points on the RPI.
Higher energy bills will also boost inflation. Centrica, the largest supplier of gas in the UK, will raise gas bills by 12.4% and electricity bills by 9.4% in September. Its smaller rival EdF Energy has announced a 19% and a 9.1% rise, effective at the end of July.

IR up up up it seems. Things are bad, very bad. Inflation is rampant and UBS seem to have it right.

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I can see the BOE going after inflation with more decisiveness if all the reports are looking bad - there's no way they can let it run away propting 2nd round wage inflation which will surely be the case if it gets above 3%. We could well be seeing rates nudging 6% by the end of 2007 regardless of how well the economy is doing....

inflation = wage inflation = recession

no avoiding it.

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inflation = wage inflation = recession

no avoiding it.

more immigration + fiddling with CPI figure (again) = wage surpression + low IR + people borrowing more to bridge the gap between prices and wages + public don't realise they are being screwed...

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more immigration + fiddling with CPI figure (again) = wage surpression + low IR + people borrowing more to bridge the gap between prices and wages + public don't realise they are being screwed...

every consumer and business needs energy, hide that.

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Guest Alright Jack

I am perpetually shocked by the incredible naivety of some of the guys on here who insist on holding many tens (if not hundreds) of thousands of pounds in bank deposits providing a veritable treasure chest for this profligate desperate government.

The collective delusion on the part of these people regarding the bank of england fiasco [the Mervyn King is GOD crowd] is impressive. The bank raises rates to target demand. The rate of the rate of inflation itself will, necessarily, continue to escalate to keep this system solvent until the big day when the currency collapses.

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I am perpetually shocked by the incredible naivety of some of the guys on here who insist on holding many tens (if not hundreds) of thousands of pounds in bank deposits...

Anybody doing this ATM must be nuts with current inflation levels...

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Guest muttley

I am perpetually shocked by the incredible naivety of some of the guys on here who insist on holding many tens (if not hundreds) of thousands of pounds in bank deposits providing a veritable treasure chest for this profligate desperate government.

Where would you put it then?

When we (accidentally) sold our house in 2003, we put the proceeds into a high(!?) interest account. We fondly imagined we would soon be needing it to buy a new house. I have since moved some into premium bonds and a few into shares, but a sizeable amounts sits in a First Direct account earning, well, not very much. I understand long term investing, but what would you do short term? Bear in mind it has to be low risk, otherwise the Mrs will be after me with a carving knife.

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Where would you put it then?

Property?

TBH I'd explain to her that you may as well blow the lot before it's worthless....

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If you have 100k in the bank, why would you put it into property with interest rates rising? What better way could you come up with to lose it all?

And no, inflation does not make house prices increase. Inflation without wage inflation makes house prices crash.

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If you have 100k in the bank, why would you put it into property with interest rates rising? What better way could you come up with to lose it all?

And no, inflation does not make house prices increase. Inflation without wage inflation makes house prices crash.

Your looking at loosing around £5K a year with £100K cash paying 5%

Inflation without wage inflation and people not borrowing cheaply to bridge the gap makes house prices crash.

If you've still got morons building up debt just living day-to-day and consolidating through MEW because they can't grasp the concept of the widening gap between their static wages and increasing prices for everything then inflation will continue to rise

The latest IR rise and heavy recent heavy tv/paper advertising by NS&I (these make me laugh) indicates a shift to coax people into cutting back and saving - not going to happen - they've let inflation rise too high for that...

Edited by dnd

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Guest Alright Jack

If you have 100k in the bank, why would you put it into property with interest rates rising? What better way could you come up with to lose it all?

And no, inflation does not make house prices increase. Inflation without wage inflation makes house prices crash.

The fakery of the MPC in raising rates to prop up demand for the currency is laughable. Especially as they are talking about controlling inflation. They don't target inflation (supply), they target demand, as I have explained before on a number of occasions. It makes more sense to say that the BoE target hyperinflation.

The amount of currency in the system, in combined form, will continue to expand at ~13% and will only accelerate in pace. This has to happen or the system collapses because it is, by the definition of zero and fractional reserve banking, insolvent. All the bank can do to try to maintain some standard of value and stabilize the rate of decline in purchasing power - and therefore confidence - is to artificially increase demand by raising the rate of interest which is very far below the rate of inflation.

At some point in the near future, IR will hit a ceiling because if you destroy the economy then the cumulative debt (effectively the entire money supply) becomes worthless (how can a broken economy pay its debts?). At this point the default will occur in the form of a severe sterling crisis. This is when you get the runaway price increases in the broad economy (this is simply the result of the realisation that the currency is not worth what the creditors (holders of currency) thought it was worth.

All nominal assets (bank deposits, pensions, loans, stocks, etc, etc) will be ruined. To what extent the damage will be is impossible to predict but given the lameness of our industrial capacity reflected in the trade deficit, the large debt of citizens and the state (the state by the way has debts which amount to a burden of £19000 per family and growing every day) it is likely to be very large indeed.

Your wife wants to avoid risk. In my opinion, the currency carries very large risks right now.

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At some point in the near future, IR will hit a ceiling because if you destroy the economy then the cumulative debt (effectively the entire money supply) becomes worthless (how can a broken economy pay its debts?). At this point the default will occur in the form of a severe sterling crisis. This is when you get the runaway price increases in the broad economy (this is simply the result of the realisation that the currency is not worth what the creditors (holders of currency) thought it was worth.

All nominal assets (bank deposits, pensions, loans, stocks, etc, etc) will be ruined. To what extent the damage will be is impossible to predict but given the lameness of our industrial capacity reflected in the trade deficit, the large debt of citizens and the state (the state by the way has debts which amount to a burden of £19000 per family and growing every day) it is likely to be very large indeed.

Your wife wants to avoid risk. In my opinion, the currency carries very large risks right now.

AJ - I agree with your comments on the money supply but I don't think the big crunch is going to happen any time soon, certainly not within the next few years. Even if we do reach that point it wount just be the UK since many other countries are in the same boat.

You have also avoided answering the question as to where to put the money by saying where not to put it.

Do you think gold over the next few years is going to provide a better return than bank accounts, bonds and stocks?

For the average joe buying gold is not easy and putting all your money in it i would say is pretty risky. There are good arguments why it would increase in the next few years but its always very risky betting on just one commodity.

If its a deposit for a house then id recommend 2/3 cash and 1/3 shares/bonds. The money supply is increasing at around 12% but consumer prices certainly arent so i disagree with dnd that your looking at loosing around £5K a year with £100K cash paying 5%.

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Where would you put it then?

When we (accidentally) sold our house in 2003, we put the proceeds into a high(!?) interest account. We fondly imagined we would soon be needing it to buy a new house. I have since moved some into premium bonds and a few into shares, but a sizeable amounts sits in a First Direct account earning, well, not very much. I understand long term investing, but what would you do short term? Bear in mind it has to be low risk, otherwise the Mrs will be after me with a carving knife.

How about gold?

This insane paper currency system can work only as long as people consent to participate in it. Get rid of as much money as possible, convert as much into real things as you can, invest in commodities, take out as little debt as possible, grow your own vegetables, cycle, barter. In short participate in the money economy as little as humanly possible. Paper money is becoming increasingly worthless, so get rid of it as soon as you can.

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How about gold?

This insane paper currency system can work only as long as people consent to participate in it. Get rid of as much money as possible, convert as much into real things as you can, invest in commodities, take out as little debt as possible, grow your own vegetables, cycle, barter. In short participate in the money economy as little as humanly possible. Paper money is becoming increasingly worthless, so get rid of it as soon as you can.

Suggesting Gold is a good idea for maybe 20-25% of your worth if you want to exposure without putting all eggs in one basket.

But, how does 'Joe Public' get into Gold?

AFP

p.s Just found this article which looks interesting for some background and reasons:

http://www.moneyweek.com/file/3143/invest-in-gold.html

Edited by AwaitingFairPrices

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Robert Barrie, head of European economics, said: “It takes more than a quarter-point [rise in interest rates] to make difference to anything. The Bank’s model suggests it reduces inflation by less than 0.1%.

This is the stomach churning bit for the big borrowers.

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good post allrightjack.

...which is why you are currently seeing the dreaded 'inverted yield curve'

in the US bond markets. this means that whilst short-term rising inflation

is pushing up the price/yield of short-term bonds, the longterm bond is

running at a discount.. meaning deflation is the expected outcome.

inflation is derived from the m3 money supply increasing - CPI is the

indicator most people think of, but this is purely a reflection of more

money chasing the same amount of goods - causing prices to rise.

since most of the old industrial world is running an inflate or die policy,

a la bernanke, dropping dollars from helicopters if needed.. a round

of competitive currency devaluations is sure to follow. you may well find

that interest rates increase, but they will surely peak and then be reduced

at a much faster and accelerating rate in a desparate new attempt to keep the

consumer consuming.

once the economy reaches a point where no matter how much stimulus

is provided it fails to grow - it will shrink. stagflation will follow - leading to

deflation.... once deflation occurs the only things worth having will be those

that have a fixed capacity, ie. gold. ..it would then follow that a decent asset

to be holding at that stage would be housing bought with debt, thus rewarding

the indebted and destroying the middle classes (a scenario most recently

seen in argentina). how ironic is that - rewarding the indebted !

these lessons all appear in history - shame that each generation seems to

think that history may be disregarded and that they know better.

my advice is worth precisely what you pay for it - nothing... but my money

is invested in uranium, corn, alternative energy and gold (try gbs which is an

etf backed by physical gold).

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Inflation without wage inflation and people not borrowing cheaply to bridge the gap makes house prices crash.

Look, in the last crash, inflation was high (hence interest rates around 10%) and prices still crashed.

What's so different this time that prices will magically continue to rise while inflation is increasing, wages are not increasing much because jobs can be outsourced or insourced, interest rates are going up, and banks are tightening lending criteria?

The only thing keeping prices high are people borrowing tons of money to BTL. When that stops, the market crashes because there's nothing else to hold it up.

The very last thing any sane person would do right now is buy property.

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. once deflation occurs the only things worth having will be those

that have a fixed capacity, ie. gold. ..it would then follow that a decent asset

to be holding at that stage would be housing bought with debt, thus rewarding

the indebted and destroying the middle classes (a scenario most recently

seen in argentina). how ironic is that - rewarding the indebted !

I thought that if deflation occurs (as happened in Japan) that your debts would effectively become worth more as time went by. Is this good?

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.... once deflation occurs the only things worth having will be those

that have a fixed capacity, ie. gold. ..it would then follow that a decent asset

to be holding at that stage would be housing bought with debt, thus rewarding

the indebted and destroying the middle classes

I thought gold was tradidtionally a hedge against inflation not deflation?

If you hold housing bought with debt during a deflationary period, surely you debt in real terms will get bigger (opposite of having it eroded by inflation) How can that be a good thing?

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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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