UK economy on Rollercoaster.

Posted on: 22.07.2010    08:37:37

The British economy faces a triple whammy of higher inflation, lower growth and rising unemployment, according to one of the Bank of England’s most senior policy makers. Living standards over the next few years will rise only “minimally” or put another way could fall in real terms.

Also ‘quantitative easing’ – the Bank of England’s way of force-feeding money into the economy – is again at the centre of the Monetary Policy Committee minutes. We hope this is for academic completeness rather than a serious suggestion to start the printing presses again.

Andrew Sentance may continue to win headlines for his obduracy on interest rates, thinking they should rise to head off inflation, but the debate is moving on.

The combination of a soft American economy, Europe’s fiscal squeeze and Britain’s lending drought suggests that the UK economy faces rough times ahead, with a real drop in spending power.

There is worse to come with the fiscal squeeze starting to bite, real incomes under pressure and house prices, the primeval force in the UK economy, starting to flag badly.

So we could see:

• Increasing interest rates to try to curb inflation
• A House price drop of 15-20% in the next 12 months
• Sharply increasing unemployment
• Reduced expenditure, therefore lower demand leading to a double dip recession.

Tomorrow the results of the stress tests on 91 European banks will be released. If they all pass the wrong questions have been asked. If a number fail then tighten your belt, hang on to your hat we are on an economic rollercoaster and equities could fall sharply.

 

Author: Chris Slay

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