Inflation Up Slow Growth
Published / Last Updated on 10/08/2010
by Ashley Clark, Director
The Bank of England is expected to revise economic forecasts for next year.
With the ecomony slowing down, government spending down, taxes going up, VAT going up and interest rates on hold, inflation is likely to increase.
The Bank of England forecast growth at 3% and inflation at 2% when Labour was in power.
It looks likely that growth will be revised down to around 2% for next year and CPI (consumer price inflation) up.
CPI (the newer measure for inflation) is lower than what most of us are used to i.e. RPI (retail price inflation which stands at 5%). No wonder the government has changed the linking of many benefits and pensions in payment (outside state pensions) to CP from RPI.
We suggest this is all a con and by design. Inflation will be allowed to escalate much in the same way as the late seventies and late eighties to devalue a huge public sector debt that the government cannot afford to pay back, so it will just devalue it.
Expect double digit inflation over 10% within the next few years. Interest rates will then increase substantially. If you have mortgage debt exposed to tracker rates or standard variable rates, we recommend you pay as much off as you can whilst rates are lower. Remember the late eighties with mortgage rates at 16%? It may come back to haunt us.
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