Monday, December 27, 2010

The genie will soon be making an appearance here as well...

The UK inflation genie is out of the bottle
As 2010 draws to a close, it's becoming ever clearer that the UK's economic prognosis is not good.

'm a natural optimist and don't wish to upset anyone's Boxing Day celebrations. Any commentator worth their salt, though, at times like this, should ignore such sensitivities. It would be wrong – reckless, in fact, given the slew of recent bad data – to fail to point to the worrying mix of economic issues the UK now faces.

During 2011, the British economy will suffer from rising inflation and sluggish (in some quarters, possibly negative) growth. This grim combination will be set against a budgetary situation that can only be described as ghastly.

George Osborne was recently in New York, soaking up plaudits for boldly leading Britain into fiscal austerity at a time when, apparently in contrast, America's feckless political elite has allowed the national debt to balloon. The problem is that UK austerity, so far at least, is a myth.

November's national accounts, released last week, were shocking. Government spending last month was sharply up on the same month in 2009 – yes, up! British state borrowing is still escalating, with the national debt rising very quickly.

Anyone who takes an intelligent interest in current affairs could be forgiven for inferring from the political rhetoric that the UK's fiscal squeeze is not only well under way but that the worst is actually behind us. If this was indeed your impression, you may want to pour yourself a large Yuletide sherry and possibly take refuge in another bowl of trifle. For the grim reality, as the latest figures show, is that Britain's fiscal squeeze hasn't even begun.

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