The UK

Shock jump in UK inflation to 2.7pc

UK inflation jumped to a surprise five-month high of 2.7pc in October as higher university tuition fees and food costs pushed up the cost of living for British households.

The Telegraph,

13 September, 2012

• Annual CPI inflation +2.7pc in October (2.2pc in September)

• Annual RPI inflation 3.2pc (2.6pc last month)

• Highest annual rate of education inflation since records began

• Highest year-on-year rate of CPI since May

The figures from the Office for National Statistics were higher than expected. Economists had forecast that the consumer price index (CPI) would rise from a 34-month low of 2.2pc in September to between 2.3pc and 2.5pc in October.

A near trebling of university tuition fees after the Government lifted the cap to £9,000 this year was the main contributor to the rise in inflation.

Education costs overall rose 19.1pc between September and October - more than twice the size of the next biggest monthly increase for education prices since CPI records began in 1996.

Food inflation was also behind the rise in CPI after the record wet weather earlier this year left the UK with its worst potato and carrot harvest in living memory, which pushed up vegetable prices, according to the ONS.

Fruit and confectionery prices also rose. The rise in sweet prices was due to confectionery companies reducing the size of products - the ONS treats that as a price increase as consumers get less for their money.

The figures also showed that the Retail Prices Index (RPI), which includes housing costs, rose to 3.2pc in October from 2.6pc in September as mortgage rates also increased. The RPI rise between September and October was the largest monthly increase for two and a half years.

The ONS said last month's SSE 9pc increase in energy prices for customers were not taken into account for the October figures. However, planned rises in gas and electricity prices later this year are likely to push up inflation in the coming months.

Alan Clarke of ScotiaBank said: "I'm a little surprised. We knew university tuition hikes were coming but the extent to which this is reflected in the data is dramatically bigger than when we've had increases in the past.

"Where do we go from here? Onwards and upwards. Utility bill increases are on their way. We've also got the effect of the US drought and increased food prices to factor in.

"I don't think we're going to get anything like the 2pc inflation target."

Economist Samuel Tombs, of Capital Economics, said the inflation data provides an "uncomfortable backdrop" to the Bank of England's inflation report on Wednesday.

The Treasury said the figures were "disappointing", but inflation remains far lower than its peak of 5.2pc last September. However there are fears the rate could reach 3.5pc by the middle of next year.

Rising inflation will likely also fuel speculation that the Bank of England will hold off from taking further action under its economy-boosting quantitative easing programme.

Separate figures published by the ONS on Tuesday showed that factory gate inflation held steady at 2.5pc, but input cost inflation was higher than expected, showing an annual rise of 0.1pc compared to an expected 0.5pc decline.

House price data released alongside these figures showed property prices were 1.7pc up on the year in September.

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50,000 zombie firms to fail if rates rise

TENS of thousands of firms are set to go bust when interest rates rise, taking hundreds of thousands of jobs down with them, business troubleshooting group the Institute for Turnaround (IfT) has warned.

City A.M,

13 September, 2012

There are almost 150,000 zombie firms in the UK – businesses that are fundamentally broken, and only still alive because ultra-low interest rates are holding down their debt repayments.

But while some firms may be able to restructure their debts and business processes to thrive in the long run, up to 50,000 are deemed “beyond hope” by the IfT, as they can barely pay interest on their debts, let alone repay the capital.

Firms of all sizes – from two or three-person operations to big businesses employing hundreds of staff – are zombies, meaning hundreds of thousands of jobs are going to be lost when rates rise at some point in the coming years.

“Between 25 and 30 per cent of these firms are beyond hope, and will fail when interest rates rise,” IfT chief executive Christine Elliott told City A.M.

“A lot of oversupply built up in industries like shipping and retail, and low interest rates have just postponed the inevitable – the recession still has to work its way through these sectors.”

However, Elliott did provide a glimmer hope to struggling companies. “If they restructure now, perhaps 10 per cent of these zombie firms could turn out to be stars,” she said.

She also warned that by stopping weak firms from failing, low rates also stop good firms expanding to help the recovery.

A LA WEIMAR: THE BANK OF ENGLAND HAS JUST CROSSED THE LINE INTO OUTRIGHT GOVERNMENT MONETIZING

Silver Doctors,

12 November, 2012

 

 

Last week’s news that the Bankof England had stopped Quantitative Easing early because it was not needed was a load of rubbish.  The truth is that it was stopped early because MORE COUNTERFEITING WAS NEEDED, and the BOE figured out a way to directly monetize the debt, while out of public scrutiny. 

QE will continue TO INFINITY….AND BEYOND!!!  on both sides of the pond.

The MSM story actually compares the practice to Weimar Germany.

As the Telegraph reports:

So now we know why the Bank of England’s Monetary Policy Committee called a halt to more Quantitative Easing this week – it’s because the Chancellor and the Governor of the Bank of England have concocted a backdoor way of doing the same thing.

The latest little (actually quite big at a tidy £35bn) money printing wheeze comes about as close to outright monetizing of government spending as it is possible for the Bank of England to go without simply creating the money and handing it by the lorry load to the Treasury, a la Weimar.

What the Treasury has decided to do is take the accumulated interest payments on the stock of government debt the Bank of England has bought under quantitative easing, and credit it to the Government’s books rather than the Bank of England’s. The total is £35bn, of which the government intends to take £11bn this financial year and £24bn next.

 

It is now full blow QE or instant collapse:

The Government excuses its actions by saying that it is only bringing itself into line with practice in Japan and the US, the other major economies to be practicing substantial QE right now. It might also be argued that to the extent the European Central Bank indulges in bond purchases, it practices something quite similar too.

In any case, you might reasonably think that it doesn’t really matter how the government accounts for the interest on the Bank’s stock of gilts. Since the Bank of England is 100pc owned by the Treasury, the government has in essence only been paying interest to itself, so why not just stop the charade and save the money?

Wrong, wrong, wrong.

 

Even the MSM now realizes that the BOE is in effect defaulting on gilts:

Never the less, a reasonable argument could be made for QE as a mere liquidity operation – the swapping of one asset, gilts, for another, cash – that could quickly be reversed when the economy picks up momentum again. But this is very different. A key part of the contract under which gilts are sold – the coupon – is now in effect being waived. Though the government vehemently denies the notion, the Treasury is in essence defaulting on the gilts held by the Bank of England. Not good, not good at all.

This is a slippery slope, and I regret to say that the Bank of England is now very much on it.

See the article from the Telegraph HERE