Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Inflation Surges to 3.8% as Bank of England Loses Control of Monetary Policy

Economics / Inflation Jul 15, 2008 - 06:41 AM GMT

By: Nadeem_Walayat

Economics Best Financial Markets Analysis ArticleThe official rate of UK inflation as measured by the CPI index surged higher for June to 3.8% from 3.3% which is inline with Market Oracle expectations that is expected to see inflation continue trending higher to well above 4% over the summer months, with the RPI inflation measure set to rise to above 5%. The impact of the inflationary surge is for the Bank of England to have effectively lost control of monetary policy in that the Bank is paralysed into inaction, neither able to cut interest rates to prevent the UK economy from plunging into a recession, nor able to raise interest rates to curb surging inflation for fear of triggering a deeper recession.


Therefore Britain is heading for a period of stagflation that is accompanied with not only real terms asset price deflation but also in nominal terms as the UK housing market enters into full house price crash mode, as measured by a 5.8% fall in house prices for the quarter April 08 to June 08 as illustrated by the below graph and at an annualised rate of 9% which is beyond the forecast trend for a decline at the rate of 7.5% per annum as of August 2007.

UK inflation's bust through to near 20 year highs has deep consequences for the potential to ignite a wage price spiral, whereby workers demand higher pay settlements that employers pass onto consumers that again in turn demand ever higher wage settlements thereby igniting a wage price spiral that eventually requires much higher interest rates accompanied by severe economic contraction.

With Interest rates on hold at 5%, the UK is heading for negative real interest rates as the RPI passes 5%, the consequences of which will be felt in the foreign exchange markets as the British Pound falls against the stronger currencies and therefore further contributing to inflationary and stagflationary forces as import prices continue to rise.

The Bank of England is placed in an extremely difficult situation which puts it at odds with the Brown Government that is seeking to boost the UK economy through fiscal stimulus as observed by the £3 billion tax cut during the May 2008 series of elections. The impact of which is to prolong the period of stagflation during 2009 by undermining the Banks efforts to try and bring inflation back under control.

Recent articles on UK Inflation, Interest Rates and House Prices

By Nadeem Walayat
http://www.marketoracle.co.uk

Copyright © 2005-08 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading, analysing and forecasting the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 150 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in