UK Stagflation Risk As Inflation Hits 3.1% and House Prices Fall
By: GoldCore
GoldSeek.com
Wednesday, 13 December 2017
– UK inflation hits 3.1%, highest in nearly six years
– UK earnings flat – households are still suffering falling real wages
– Stagflation risk as food and drink prices jumped 4.1% in 12 months
– UK house prices fall two-months in a row, down 0.5% in October
– Real stagflation risk now, inflation high and growth slowing
– Savings continue to be eaten by inflation
It was just two years ago that Mark Carney was writing his fourth letter to the British Chancellor, explaining why the country was in a deflationary slump. Even then households were feeling the pinch, despite what officials reported.
Since then Brits have become increasingly vindicated as inflation figures have begun to show what they have all known for some time – prices and the cost of living is on the rise.
Now Mark Carney is forced to write a different type of letter to the Chancellor, one where he will have to explain why inflation is above target at 3.1%. The jump to over 3% in the year to November is the fastest paced increase seen in nearly six years.
Carney’s dilemma
The Governor of the Bank of England now finds himself in a bit of a quandary.
Usually a central bank would increase interest rates in order to combat inflation. Currently the UK’s stands at the punishingly low 0.5% so one would think that there is plenty of room for manoeuvre.
However, debt levels in the UK are massive – at every strata of society – and increase rate rises will lead to a recession or indeed a depression. There is also the not inconsequential matter of Brexit.
Brexit is now seemingly more important than the spending and saving power of Britain’s households and must be considered when looking at a rate hike. When rates were raised last month (the first time in a decade) it was done with the Bank of England’s acknowledgement that Brexit was likely to hurt the country’s growth prospects. So the MPC erred on the side of caution.
With the Brexit cloud growing ever darker and uncertain, the Committee are aware of the need to keep consumer spending, the engine of the UK economy, pumping along. However, if inflation is not ‘handled’ then too much inflation could threaten the central bank’s grip on the economy. Too much inflation could result in total engine failure.
This is Carney’s dilemma.
The Rest…HERE
