UK economy reeling after triple whammy

More gloomy data on inflation, housing and spending equals more headaches for the Government...

by
Last Updated: 31 Aug 2010

The UK Consumer Prices Index jumped to a hair-raising 4.4% in July, according to official figures released today. That’s up by a (worse-than-expected) 0.6% on the previous month, and means the headline rate of inflation is now nearly 2.5% ahead of the Bank of England’s target. That’s good news if you supply the Governor’s letter-writing paper (for his inevitable missives of explanation to the Chancellor) but not much good if you need to jump-start an ailing economy…

Soaring food prices were largely to blame, not surprisingly, jumping by a record 13.7%. The recent drops in petrol prices provide the only ray of hope, but these came too late to affect the July figures. Clearly retailers are now passing on their higher costs to the customer (the Retail Prices Index actually jumped to 5%, which is unfortunate if you’re an employer about to start pay negotiations), and are feeling the squeeze to such an extent that they can’t offer the same sort of summer discounts as this time last year.

Not that discounting is always the answer. The second part of today’s unwanted triple whammy was news that high street spending fell again in July, despite some heavy discounts by the big clothing stores. The British Retail Consortium said that although total sales inched up 1.7% on last year, like-for-like sales dropped by 0.9% as consumers saved their money for the essentials. ‘Frivolous shopping is off the agenda as most customers concentrate on value and durability,’ said BRC director-general Stephen Robertson.

Last but by no means least, there was more bad news on the housing market. The Council of Mortgage Lenders reported today that the number of new mortgage approvals in June was less than half the equivalent figure for the same period last year – about 47,000 compared to 98,000 in 2007. Meanwhile the Royal Institute of Chartered Surveyors said its members recorded an average of less than five sales a month each during the three months to July. And that’s before the Treasury started prevaricating about stamp duty holidays...

In fact, given that the Government’s sole contribution to this issue so far has been to make matters worse – surveyors report that its stamp duty hints have given first-time buyers yet another reason to steer clear of the market – it’s hard to feel much confidence in its ability to sort this mess out...


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UK economy reeling after triple whammy
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