28 january 2011, growth down, inflation up, rates up

Friday 28th January 2011

Major shock, apparently, this week, that uk growth at the end of last year was only minus 0.5%, meaning it actually shrunk; another of those and we’re back in recession. Suddenly of course, everyone seems to have predicted it, but actually it’s much more drastic much quicker than anyone forecast. This is not unconnected to inflation, the figures released a few days before being not that much less of a shocker themselves, and yet again way above bank of england predictions. They have now missed the 2% target 55 of the last 66 months. There is a point at which the longevity of this means that inflation expectations rising becomes a given and any concept of it being a “temporary spike” impossible. I would argue that point has come, although its usual consequence, the infamous wage-price spiral, has not - as low (now negative) growth will continue to depress wages. What this all really means to me is that uk plc is well on with its grand plan (22 nov 2009) to get rid of the debt, namely cut a third (yes, plans will slip), devalue away a third (virtually done already) and inflate away a third, that pain being spread widely through the gentle but elongated depression of all our purchasing power. It will bite that much more deeply when interest rates start to go up, and even the bank of england can hold back that rising tide only so long; it will be infinitely harder once the ecb makes the first move, as I think is now more than odds on in the next very few months.