UK: Inflation up 2.9%, oil and gas up, national debt up

 

UK inflation up = 2.9% and oil and gas prices up and this means growth of national debt accelerates.

Whatever numbers are given, the said numbers are totally outdated 24 hours later. The image just explains what happens when inflation goes up. Indexed debt is adjusted using as reference inflation rates.

This is Britain today. How has the British economy being affected by President Trump´s military adventures? Pretty baddly. First the talk about tariffs, but that was nothing compared to the uncertainty created by military conflicts created by USA geopolitical stances.

And United Kingdom is not alone. Countries that were supposed to be allies of the USA have been extremely negatively impacted. This can hurt more than bombs and missiles as countries become politically and socially unstable. When governments and politicians become detached from reality on the ground and in so doing become detached from the peoples that get them elected, peoples who are increasingly allienated, this cannot lead to peaceful coexistence. Inflation means that peoples´incomes are constantly devalued and for many this means not being able to pay for the basics of human life. 

4 Days to go: 20 January 2025

 

Whether the Knesset ratifies any ceasefire remains to be seen. President Biden wanted to close his time in office with some big news, but premeditated Jewish delays are already threatening the supposed ceasefire deal as 70 Palestinians are murdered by Israel in the last few hours.

Everybody is expecting big changes in national and international politics. Panama Canal built by USA to be controlled by USA. Another USA State or more than one new USA States? And when you talk about the Gulf, it might not be about Middle East or Asia Minor but closer to home as the Gulf of Mexico becomes the Gulf of America.

Will Keir Starmer, Zelensky and Ursula von der Leyen be invited to the inauguration of the new American President? Another bit of 'let's wait and see'. Will the now British Foreign Secretary that has repeatedly insulted President Donald Trump be invited to the ceremonial and very formal occasion?

We know that happened to Governor Trudeau that soonafter a meeting with President Trump was given his marching orders. Will other politicians be given their marching orders? Again, let's wait and see. In Germany, a Federal Election can dramatically change the political environment in Germany and in France the new Prime Minister is fighting for his survival and being threatened with a no confidence vote. Will he last until July 2025 when new French Assembly Elections can take place.

And in Britain, Keir Starmer is losing cabinet members as trees lose leaves in the autumn. Will Rachel Reeves remain in her post? Let's see what she can come up with in the new budget. Although inflation is said to have fallen, the fall has nothing to do with announced financial measures that will only come into effect in April 2025. Let's see what happens to inflation after April 2025 when the real picture of the British economy will come to the surface. 

Labour will put up taxes: no matter how many times they try to deny it, improvements have to be paid for

 

No matter how many times, Keir Starmer or any other Labour party supporter tries to deny it, the fact remains that promises made by the Labour Party will have to be paid for by rising taxes and Council Tax is the one thing that will be targetted as it was targetted in Birmingham to try to rescue Birmingham from bankruptcy. 

You cannot increase salaries across the public sector and invest monies to rescue the British Armed Forces from extermination without paying for it with higher taxes. For many, next July is going to be a very hot summer and not just because of weather conditions. 

Remember: there is no free lunch. And we must start wondering how rising taxes and rising prices in the shops are going to affect the economy and what the political consequences will be for the country as a whole. Any worsening of financial circumstances will push people towards extremes.

Energy Crisis: Who is winning?

 

Covid did damage economies and completely changed lifestyles, but the single most  negative factor for Western Economies was the knee jerk reactions aimed at damaging the Russian Federation that ended up creating hardship, political and social instability in those countries seeking to undermine the Russian Federation.

For those living in the United Kingdom, sanctions against the Russian Federation meant the end of the Paradise of low prices and stable economics. Just when Britain was coming out of the nightmare created by Covid economics, the British government - once again - reacted by impulse instead of using their brains properly. Not enough with mistakes made in Iraq, Afghanistan and elsewhere. British politicians had once again to put a foot wrong by jumping on the American bandwagon of failed foreign policies and started to dig an even bigger hole for themselves.

British policies regarding events in Eastern Europe have led to catastrophic realities in the United Kingdom and elsewhere. Industrial economies rely on... energy. Something that British politicians completely forgot about it. Germany, thank to Merkel, got into a bigger hole. Why? Merkel's knee jerk reactions regarding nuclear power. What would be the chances of a tsunami hitting German nuclear reactors as it happened in Japan? Zero. Angela Merkel over-reacted and decided to leave Germany totally exposed to an energy crisis having to almost totally depend on fossil fuels. Even France with its nuclear capacity got hit because... France negleted its nuclear infra-structure.

The conflict has been raging for years now and might continue for the foreseeable future, although the USA and Germany are now applying pressure on Ukraine to force Ukraine to seek peace. At the end of the day, it all comes to money and another factor to consider is that today Europe is a lot less safe because of the stupidity of its leaders. As the Western side decided to get dirty by using weapons banned by most countries in the world, the Russian Federation decided that it had enough and passed legislation withdrawing from all nuclear weapons agreements. So now, all gloves are off. This is a situation created by Western warmongers that expected that they could whatever without a rection from the other side. They have used Ukraine in a war by proxy against the Russian Federation and now those who jumped on the warmongers' bandwagon are bound to pay the consequences.

General Winter is coming. The expectation is that all Ukrainian infra-structure will be wiped out, pushing Ukraine back to the Middle Ages.

Official inflation rate = 10.1% Utilities and communication providers raise prices by 14.4% Justified?

This is the Wild West. Certain operators are treating their customers as hostages. There is no justification whatsoever for such increases and in the end such abuses are going to create an unscapable inflation upwards spiral. But there is worse. Some shops have increased their prices fourfold. What used to cost £1 is now offered at £4. This is unsustainable and sooner than later abusers are going to cause their own demise with 'closing down' signs. This sort of public hysteria is extremely dangerous and the authorities have no answer for it.

People being thrown onto the streets because they cannot afford rental accommodation price rises of 20 per cent? How on earth is this being allowed to happen? Because this is becoming widespread you realize that we don't really have a government. This is a national emergency. There is no point in strikes and negotiations if landlords are going to abuse the system to the point that whatever is agreed during salary negotiations is automatically cancelled, superseded, by disreputable landlords. Will the authorities step in or will they sit on their hands and allow abusers to destroy the entire economy? 

Triple Lock and Pensions: Nothing is guaranteed

 

The subject of state pensions will surely cause global warming

The Conservative/Liberal Coalition set out the triple lock aimed at protecting the value of state pensions and in 2019 the Conservative Party Manifesto stated that for the duration of the present Parliament the triple lock would be maintained - although momentarily, during the pandemic, the triple lock was suspended and due to be restored in April 2023.

The pension is supposed to increase every year depending on which of the following items is highest:

1) inflation measured by the CPI (Consumer Prices Index) 2) average wage increase or 3) 2.5%

This was before the present economic environment in which inflation shot upwards and is now above 10%. The present goverment led by Rishi Sunak will have to make a fundamental decision in terms of keeping the triple lock at least until the next General Election or abandoning the triple lock. 

In a country in which the average age of the population is rising, telling voters that the government is going to abandon the triple lock is not a vote winner. There are also plans to postpone the age of retirement. Chancellor of the Exchequer Jeremy Hunt will have to make a statement on plans for tax and spending. Britain has one of the lowest state pensions when compared to other Western countries. and given present rates of inflation the value of state pensions is being eroded on a daily basis.

If the triple lock is abandoned, the value of state pensions will purely and simply collapse.

 

 Double-digit rates of inflation in the European Union

This is what is happening in many EU countries right now. Will the energy crisis make anything better or worse? Knee-jerk reactions are leading many European countries towards a major disaster. Britain's backwards and forwards political decisions do not favour any kind of political stability either. This comes on top of the COVID disaster and the rabid anti-Russian attitudes that might be leading the continent towards a political blackout. Investors need to trust that European economies are in capable hands. Are they?

Welfare systems don't have the capacity to deal with changes of such magnitude and the financial system is bound to suffer if suddenly customers cannot afford to repay debts or to keep up with mortgage payments. There comes a time when interest payments become unaffordable and Argentina could teach us a few lessons about that. Mortgage defaults and inabilty to rent accommodation are major issues. There is even the case of landlords who explicitly say that they do not let properties to people who can only pay for accommodation with welfare payments. There will be even less properties let  to people supported with welfare payments if legislation is passed preventing landlords from evicting tenants who cannot afford tenacy payments.

Britain is in a dire position. Who is the Prime Minister? Who is the Chancellor of the Exchequer? Who is in charge? What will be the tax regime tomorrow? Day-after tomorrow? Next week? Next month? Political volatility and economic volatility go hand in hand.

Germany is no better. SPD barely managed to form a coalition that could be broken apart by the consequences of energy crisis. Job creation? If manufacturing is torpedoed by energy prices or scarcety of energy sources, the concern will not be about creating more jobs, but about keeping the ones that already exist. BMW's move to China might be due to several factors including an uncertan tax environment, the prospect of energy cuts, the fact that China is not deterred from building new coal fired energy plants and therefore able of offering cheaper and reliable sources of energy and if this wasn't enough the fact that China is a gigantic market.

If financial sectors get into trouble - it happened before - will governments be willing or be capable of rescuing financial sectors? And what about industrial unrest? Are we thinking about the consequences of persistent industrial unrest? For every strike i.e. transport strike, how many other areas are negatively impacted? If strikes happen simultaneouly, the impact is compounded.  

 

 

UK: In just a few weeks, the British economy could be in the doldrums and much stronger leadership will be needed

 

What is happening right now is deeply worrying because the times of easy money could be coming to an abrupt end. The issue is not just rising inflation. The issue is that salaries and pensions have been pegged to inflationary pressures. 

At this point in time, asking for salary rises pegged to inflation could itself be a force towards more inflation and more borrowing when interest payments will be taking their toll on public finances.

And what if, as expected, the Treasury does not agree to salary increases that it could hardly afford? Would the state sector be ground to a halt? It is understandable that public workers that are seeing their incomes devalued are prone to ask for salary rises. Having said that, those in charge know full well that public finances have been drained and that any monies to pay for higher salaries will come from additional borrowing at a time when interest rates are going up and from an increase in taxation.

If energy is the main driver when it comes to inflationary pressures, then more energy will have to be produced and to do so all the promises in terms of a reduction of the use of fossil fuels will have be put aside. In the 1970s, Britain was almost brought down to its knees and the country was working just a few days a week. The issue was then energy or lack of it. Today, the issue is the price of it. Whoever takes the reins of power in September will have to make difficult choices. Doing less to save energy is not an option. Slowing down the British economy by enforcing energy savings will make matters a lot worse. 

We learnt from the imposed Covid lockdown leading to lack of economic activity that slowing down the British economy will cost livelihoods: businesses will be closed down and an undetermined number of jobs will be lost. Companies that generate little or no revenue at all have no reason to maintain jobs. Less economic activity endangers jobs and produces less tax revenues. If you slow down an aircraft in plain flight the time comes when the only way is down. We cannot have yet another loss of economic activity. We need energy and we need energy wherever we can find it. If foreign oil and gas producers don't want or cannot provide additional oil and gas, Britain will have to become self-sufficient and all options should be on the cards, including fracking.

Whoever is chosen as Prime Minister will have to make hard choices and implement decisions that will prove to be as unpopular as fundamentally necessary. Whether Rishi Sunak or Liz Truss is in command, he or she will have to forget about popularity contests. The popularity contest is only there to get one of them elected. Real governance demands dogged determination to do what is right.   

Britain: When the Chancellor of the Exchequer and other key figures resign....

 

When key figures of the government resign is a serious issue, but having none other than the Chancellor of the Exchequer walking away when the economy is facing Armageddon is more than serious.

If there is war in Europe, where is the money to beef up the Armed Forces going to come from at a time when Britain faces widespred industrial unrest?

Look at the state of the second most important country in the North Atlantic Alliance. Who will want to take the burning handle of the pan? Any takers? The country cannot be without a Chancellor of the Exchequer at such a crucial time. After the FTPA was repealed on March 22nd 2022 (Fixed Term Parliament Act), could the government fall and an advanced General Election be called?

Some will say that the Conservative Party has a mandate until 2024 and that any changes should happen within the Conservative Party. Others will say that given the present state of affairs another General Election should be called to restore public confidence. What will happen? Political instability worsens economic instability and any uncertainty could lead to hyper inflation.