Saturday, June 7, 2008

It’s all coming up roses for broon

UK inflation expectations for next 50 years soar

Markets are now pricing in an inflation rate of more than 4pc for the next half-century in the latest sign that they fear the Bank of England is losing the fight against rising prices.

Posted by holding out @ 02:31 PM (1358 views)
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10 thoughts on “It’s all coming up roses for broon

  • waitingfor hpc says:

    Guys – ING Bank offering 6 months savings at 6.5% – for £5000+ – not bad.really.

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  • The next 50 years!? I don’t think the fiat pound will last that long. 5 years tops.

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  • Thought we’d already soared past 4% judging by my shopping bills.

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  • Kiss your money purchase pension scheme goodbye then.

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  • micasasucasa says:

    You know inflation is bad when the sign at the entrance of Tescos says “Inflation busting prices in store”!

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  • Although this piece is technically accurate, nothing much has changed of late.

    What is very noticeable is the absurdly low returns on index linked gilts – down to a tiny 0.37% on the ILG that expires in 2055.

    By way of comparison, the historic norm for UK gilts is to yield around 2.5% over and above inflation expectations.

    While some people worry about a possible crash in the stock market, it has to be observed that equities are not over-valued relative to earnings, while the traditional refuge, the Gilt market, is looking horribly over-valued. With the government set to continue to borrow heavily, and sterling over-valued relative to the US dollar, the stage is set for a collapse in the fixed income market that would lever interest rates sharply.

    When exactly is a hard call, but it seems more likely to happen in weeks and months, rather than months and years.

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  • Uncle Tom, the stock market may not be overvalued on backward-looking P/E ratios, but if you look ahead things are a lot less rosy. There’s talk of recession in the air, and both household and corporate spending is suffering with $140 oil. The credit crunch has also put an end to the speculative buy-outs which previously kept the FTSE bouyant.

    A quick scan through the FTSE100 reveals some stocks which are obviously in trouble:
    – banks (duh)
    – airlines and travel companies (high oil prices + falling pound)
    – advertising (always suffers in a recession)
    – clothing (imports from China are getting more expensive)
    – home furnishing (people aren’t moving house and buying new sofas).

    I’d suggest looking into overseas markets, or possibly commodities; though it’s hard to tell if they’re already overbought. Gold is a popular choice amongst HPCers. I read MoneyWeek magazine for advice on which sectors to focus on.

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  • notaneconomicsguru says:

    7 . Drewster said

    “- home furnishing (people aren’t moving house and buying new sofas).”

    I say – most people find its much cheaper to take the old sofa with them when they move house. They tend to change the sofa later when its worn out and when they actually have some cash to change it with. Simple really and relatively weakly correlated with moving house – IMHO.

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  • Buy to let property was a popular choice amongst those who thought dot.com shares were a bad idea in the late 1990s.
    I think gold will be an even worse choice for HPCers now.

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  • Drewster,

    You forgot the home builders!

    Of course you don’t buy stocks blind, you have to look the outlook..

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