When I last looked at these UK GDP figures I mentioned that ‘without the allocation for sex and drugs’ – like how do you measure a cash industry input anyway? – that the UK was probably in deflation.
Well next set of figures are out and guess what?
We have deflation – wonder if this will wipe that smile off Osborne’s face?
Now when a country relies on consumer spending – in particular drugs and sex to boost their GDP then there are consequences – people can borrow at cheap interest rates – which they have done and flittered this money away – or spend available cash rather than saving – at these low interest rates – then something has to give.
Bad luck Messrs Cameron and Osborne – you have allowed manufacturing to suffer and relied for too long on the low interest rates to sustain the consumer led UK recovery.
Only one way from here . . . and no ain’t pretty.
GBP shorting anyone?
Edit: Okay a couple of UK’ers upset in that I missed an important point.
That point being the drop in fuel prices. Golly gosh – umm how does one handle this.
The CPI is an index looking at all staples plus plus. The U.K. Government in their wisdom includes drugs and sex – increases or decreases on other staples ‘consumed’.
Looking at the figures drugs and sex stayed the same – so I assume that there was no increase in the hourly calling rate for prostitutes to the members of parliament and the constituency – same applies to drugs. One assumes from the data that at least these two areas were stable with similar demand from the prior quarter.
Yes fuel prices dropped but so did gas – look at the drop in these prices – one could say in the last month (September) that drop may have made an impression – a small increase on bread and milk.
The point is this – consumer prices react on demand/output and input costs plus profit margins to manufacture – assuming demand stays the same – one would ‘presume’ that lower fuel costs would reduce staples – bread and milk – but these increased by 0.01 percent – plus there was no demand.
Look at the last two quarters – the trend is negative inflation – not necessarily a bad thing.
“Deflation is a decrease in the average price of goods and services or an increase in the purchasing power of the standard unit of currency.”
Put more simply, deflation results in consumers able to buy more than they could before with the same amount of money.
Now guess what – consumer spending takes up the majority of the GDP indicator for the UK.
This through the Government decreasing interest rates – entering into a Quantitative Easing policy that only supports – more borrowing and big business.
It does not stimulate the economy in the long term.
In fact it assists big business – an inane policy – Bernanke must be proud of.
The borrowing by consumers and business in the UK is at absurd levels – low interest rates being the drug of choice of the Government – the Government debt levels likewise – so technically how will Osborne stimulate the economy?
GBP far too strong – no way out.
Party is over.
Now – health is included in the CPI – however I wonder whether the weighted average calculation is correct in light of the underfunding of the National Health Service (NHS) over the past several years.
For some reason (sarc) there is always a black hole in the NHS budget – this time around £2 billion.