Tuesday, 16 January 2007

More bad economic news

Many economists wrote earlier this week that the decision to raise interest rates would mean a peak of 5.25% or 5.5% at most (here).

Not me, even though not a 'real' economist, it is painfully obvious that the macro-economic situation has tipped.

Today the ONS, whom are not as neutral as they say they are, have released their inflation figures (here). These make for poor reading, CPI up to 3%, RPIX up to 4.4%. This means inlfation has taken hold at the highest level since the disastrous peg to the Mark (see ERM) in 1991.

There are few downward trends, with the Government having to hope fuel costs fall back significantly and that clothing falls in price. The first is unlikley given the political instability of Iraq, Iran and Venezuela.

The second is unlikely as the sales and Christmas are over, meaning retailers will move away from discounting to selling full price summer ranges.

So be prepared for 6% interest rates this year.

If all that does not convince you, read this article by the investment strategist at Goldman Sachs, courtesy of the Telegraph.

9 comments:

Newmania said...

Now this is the sort of thing that is really handy for me . Tremendous . Not only can I read it but I can retain the links and become an expert in five minutes.

Well you can imagine how that would appeall to a chap like me !!

Great work ,( How on earth do you find the time ?)

Newmania said...

BTW - I have linked to your site nad that is the last one . What I will do is carry a recommendation on the facing page for the few I have .

Cheerio

CityUnslicker said...

Thanks N...as for time, well I am lucky like that!

I have been considering a post on economics 101 for a while to help people along. I will get round to it when the news dies down!

Anonymous said...

I also understand banks are stopping fixed rate interest mortgages.

Who is better off under Labour?

Serf said...

One of the big problems is that the underlying cause of low inflation has been China. Now the full benefit of low cost manufacturing has fed through to consumers, there is no more help from there for Gordon.

Only now are we seeing the true fruits of his ignorance.

CityUnslicker said...

Ellee- Yes fixed rate mortgages are being stopped. Banks want to push people hard whilst they can still make hay. They know what the economy will fall over.

Serf - Quite correct. one curb on inflation is being removed so we can expect a tough time to get it under control. My guess is it could reach 4% with interest rates at 6% or more this year. Next year maybe even worse depending on other economic fundamentals.

Anonymous said...

As someone who has pretty stable job prospects, no wife and kids, a spare room at the folks if things get tough and is completely priced out of the property market, this is good news and backs up my own suspicions about what will happen to interest rates and the economy.

Some guy that works in asset management explained this oil price / inflation / interets rates link to me last summer. Then the Israel / Lebanon thing started and I watched in glee as oil went to $78 then drowned my sorrows when it started falling again.

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