RoadWarriorFromLP

You are absolutely determined to not understand this stuff, aren't you?

mrken30

Tom Stevenson, investment director for personal investing at Fidelity International, says: “Inflation is back with a vengeance. The weakening pound continues to drive prices higher and today’s CPI reading of 1.6% on the back of rising fuel, food and air fares is significantly higher than expected.

“With inflation set to surge past the Bank of England’s 2% target over the course of 2017, along with Mark Carney’s willingness to look through a temporary rise in prices, savers will increasingly be thinking about how they can make their money work harder.”

The Retail Prices Index (RPI) rate of inflation, which unlike CPI includes housing costs, rose to 2.5% in December, up from 2.2% in November.

http://www.moneywise.co.uk/news/2017...on-rises-to-16

Does anyone know what the strategy of the B of E will be to fight inflation?

RoadWarriorFromLP

A central bank's recourse for rising inflation is to increase interest rates.

The problem here is that the UK may be facing a stagflation problem. Typically, inflation is caused by rising wages (read: excessively low unemployment), so a rate increase will help the economy and won't contribute to an unemployment problem. But in this case, the central bank will be raising rates even though the unemployment rate would dictate otherwise.

You can also expect a gradual exodus of firms that opt to make a choice between maintaining large UK and EU operations: many of them will favor the EU, since the EU location will provide them with a larger market. This will also be bad for auto producers such as Honda and Nissan, which built plants in the UK primarily because of the UK's EU affiliation but that now find themselves hit with a 10% EU tariff. Stupid, stupid, stupid.

Pulaski

You realise that some people made exactly the same arguments about Britain failing to join the euro, and failing to even plan to join, and that was more than 20 years ago, after the pound sterling crashed out of the pre-euro "exchange rate mechanism" in 1992. ..... Those arguments were wrong too.

mrken30

I always thought Soros played a big part in bringing down the pound back then.

mrken30

You don't think they would try reversing quantitative easing first?

jeepster

How is a trade deficit advantageous to the debtor nation?

cranston

Where did you get the 10% tariff number from??

RoadWarriorFromLP

The EU's tariff on imported passenger cars and smaller trucks is 10%. You can look this up on the EU's harmonized tariff schedule.

Of course, due to the EU free trade agreement, cars assembled in the UK aren't subject to the tariff. But they will be subject to a tariff if there is no trade agreement.

Unless there is some sort of marketing appeal to English heritage as there is with MINI or Land Rover, there will be absolutely no reason to build a new car plant in the UK if there is a Brexit. There certainly won't be any reason for a Japanese automaker to start or expand operations there.

RoadWarriorFromLP

You're typing your comments on a computer assembled in Asia and can't figure out that you benefit from the lower price?

RoadWarriorFromLP

Central banks respond to inflation risks by raising interest rates. Inflation at its core is an excessive demand for money, and central banks counter that threat by making money more expensive.

mrken30

and if you had asked someone in 1980 if zero or negative interest rates would cause deflation, I'm sure most would have looked at you as if you were crazy, you can't have negative interest rates.

There is inflation with near to zero interest rates in the UK

RoadWarriorFromLP

The inflation isn't caused by QE. It's being caused by the sterling devaluation, which is caused by Brexit.

That's stagflation at work. The British public has screwed itself, and the Tories and UKIP are making sure that said screwing is good and proper.

The Bank of England will have to prioritize fighting inflation, which will mean rate increases. So some of these idiot voters will literally pay for this when they lose their jobs.

Pulaski

Except that inflation caused by devaluation of the currency is a temporary blip that automatically reverses 12 months after the devaluation, ..... unless the currency is in a continuous slide, or the "blip" becomes systemic, caused by excessive wages demands.

But inflationary wage demands haven't been commonplace since the 1980's so I see little risk of.inflation spiraling out of control, and presumably neither does the Bank of England because despite the 10% fall of GBP against USD and a slightly smaller fall against the euro since June of last year, the Bank of England is still holding the base rate at the extraordinarily low rate of 0.25%, which it hasn't moved since past August. .... And curiously the move last August was DOWN!

RoadWarriorFromLP

The Bank of England has a 2% inflation target.

The BOE is forecasting an inflation rate of close to 3% due to Brexit.

So you should expect rates to rise. The Bank of England is essentially prepping you for it, and it would be wise to pay attention, just as it warned of the devaluation prior to the Brexit vote. (I suppose the reading the Daily Mail is a lot more exciting than is paying attention to things that actually matter.)

Brexit was wretchedly stupid, no matter how you try to spin it. It gives you more costly imports, more expensive money, and a smaller market for exports. All of that because of a dislike for Polish bus drivers.

This is why populists should not be allowed to influence policy. They don't know how to do anything except to break s**t, then are confused and in denial when the wreckage piles up.