Wednesday, January 20, 2010

Inflation, interest rates, credit ratings and unemployment, June election?

Yesterday’s news that CPI (Consumer Price Inflation) has risen by the largest one month amount in history, from 1.9% to 2.9% is far from good news for the economy and for Labour’s chances of getting re-elected.

Interest Rates
Mervyn King then bumbled along and pointed out that it may well rise above 3% (it’s only 0.1% away and went up by ten times that in one month so I think it’s a fair bet) and that interest rates will have to rise to control it. He also helpfully pointed out that this will all the patience of Britons who will be “sorely tried” as a result of stagnant pay levels and a real terms decline in living standards.

Credit Rating
At the same time the credit ratings agency, Fitch, has said that the government's plans to reduce the deficit by half within four years aren’t gutsy enough and that if it doesn’t see further spending cuts then it will be doing some cutting of its own by reducing the UK’s much vaunted triple A credit rating.

To top this off today will see the announcement of the latest unemployment figures which are expected to see around 2.5 million people unemployed. However this raw figure hides the real picture of how difficult the job market is with 18.4% of people aged 18-24 being unemployed as opposed to 6.3% for 24-49 or 4.5% for the over 50’s. So unemployment figures are actually hiding something quite interesting, that through this recession people may not have been losing their jobs in the same numbers as in previous years but companies simply haven’t been hiring young school, college and university leavers. Jobs are probably being dropped by that fantastic phrase “natural wastage”.

So with inflation sky rocketing, interest rates about to go with them, the country’s credit rating in real trouble and unemployment at a new high, how likely do you now think a March election is?
With Gordon Brown’s election strategy seemingly being that he wants to be able to say “look we got us out of this recession that we got us into” he needs good positive economic news before he can call one. If the figures don’t pick up soon then I think he may well see a drubbing at the local elections as not as bad as the economic state of the country and stick it right out until June. Anyone want to place bets?

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