British Inflationary Fears

April 23, 2009 at 7:29 am | Posted in British Politics | Leave a comment
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I have a very bad feeling about this, let me check out my hypothesis and you can shoot me down in flames if you like. Interest Rates are at record lows, but they can only stay there while the inflation climate is benign. Currently Inflation is benign, mainly due to lower fuel and commodity costs, even though the currency has dropped something like 30% in 3 years. (Here comes the real BUT. ). But….. commodities are just starting to pick up again, only a little so far, but they are starting to move and we import a huge proportion of our commodities used in manufacture. Once commodities rise to an extent where the currency depreciation is nullified then we have inflation back with a vengeance. The only way to tackle inflation is to raise interest rates to draw in the money that has been issued by the Quantative Easing that the government has undertaken. Increasing interest rates will increase costs on all those on Tracker Mortgages, and that’s the majority as Trackers were sold as “The (latest) best thing since sliced bread”, so we end up with another round of defaults and reposessions, this time with conditions tightening. If the government ignores the problem and doesn’t raise rates we have a Zimbabwe situation with potential hyper inflation, if the government does something, we have people sleeping in tents. I remember interest rates at 15% and bank loans, not credit cards, at 26%, what that would do to a typical mortgage in terms of interest just doesn’t bear thinking about.

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