Inflation up ...and down!

The rising price of imported goods - particularly fruit, vegetables and toys - has caused an unexpected rise in one measure of UK inflation. The Consumer Prices Index (CPI) was pushed up to an annual rate of 3.2% in February, from 3% a month earlier. But a sharp fall in mortgage repayments caused the Retail Prices Index (RPI), which includes housing costs, to fall to zero for he first time in 49 years. Economists had predicted that both measures of inflation would fall.

Link to BBC News

Some interesting links on the BBC News site. One explains who the likely winners and losers are from the inflation changes whilst another enables individuals to calcualte their own inflation rate by completing a table of their expenditure, providing a good illustration of how an average rate masks the experiences of individuals.

Are you an inflation winner?
Calculate your inflation rate

The basket of goods used to calculate th einflation index has also been revised. LInk

What type of inflation is the UK experiencing? If the authorities wished o bring it back within the governments target range of 2%, what could they do? Would this be appropriate in the light of the current state of the economy?

Quantative Easing: The story so far

The BBC's Hugh Pym breaks down what quantitative easing means and why it's happening.

Link: Quantitaive Easing - the story so far

Government credit at its limit?

The government has limited scope to implement its planned stimulus package as borrowing soars, according to a key economic think-tank. The Ernst & Young Item club forecasts that net borrowing will rise to £180bn in the forthcoming tax year and will exceed the Chancellor's own prediction. It said that public finances were deteriorating "at an alarming rate". Last week the IMF said that the UK would have to borrow 11% of national income to battle the financial crisis - the highest of the G7 nations. That figure was overly optimistic, according to the Item club. It forecasts borrowing to stand at 12.6% of GDP next year and that the UK would be running deficits over the next decade.

Link to BBC News

Break-up of airport monopoly ordered

The competition watchdog has ordered BAA to sell three of its seven UK airports, ending its monopoly ownership of the leading airports in London and in Scotland. In the toughest corporate sell-off ever demanded by the Competition Commission, BAA, a majority owned subsidiary of Spain’s Ferrovial, will be required to sell Gatwick, Stansted and one of either Glasgow or Edinburgh airports within two years. It will keep control of Heathrow, its most prized asset

Link: Airports face biggest shake-up in history

The commission said it had found “competition problems with adverse effects for both passengers and airlines” at all seven of BAA’s UK airports – Southampton and Aberdeen are the other two. A “key problem” was BAA’s common ownership, which precluded any competition between them.

Link:Promise of new era of lower charges - provides details of how passengers and airlines should benefit. However, there is some concern that individual airports are still monopolies and could raise their charges to recoups the costs of purchase unless there is some form of price regulation. The market will not be sufficiently competitive to ensure effective self regulation.

Unemployment hits 2 million

UK unemployment has risen above two million for the first time since 1997, official figures have shown. During the three months to January, the number of people unemployed totalled 2.03 million, up by 165,000, said the Office for National Statistics (ONS). For February, the number of people getting jobseeker's allowance added a record 138,400 to reach 1.39 million. There are now 10 jobseekers for every vacancy advertised in UK jobcentres, the TUC claimed earlier this week. The ONS added that the unemployment rate jumped to 6.5% between November and January.

The BBC News site has an interactive graphic showing how unemployment has risen in different regions of the country over te past 18 months. It is interesting to see how widely dispersed the rise has been. However, while the national average for unemployment is now 6.5%, in some regions it is much higher. Among the worst hit are the North East of England (8.6%), the North West (7.7%), London (7.5%) and the West Midlands (7.9%).

Link

Money, money, money!

The Bank of England on Thursday announced unprecedented steps to prevent the deepest slump since the 1930s when it unveiled plans to inject up to £75bn into the economy over the next three months.Alarmed by signs that Britain's malfunctioning banking system is starving consumers and businesses of credit, Alistair Darling gave Threadneedle Street clearance to begin creating money – the last-gasp measure used by Japan to end a decade of recession and deflation.The Bank said it would embark on quantitative easing next week, after its monetary policy committee cut the bank rate for the sixth time since the global financial system came close to collapse last Oct­ober. The rate is now 0.5% – a level not seen before in the Bank's 315-year history.
Mervyn King, the Bank's governor, said it was unlikely that bank rate could go any lower and policymakers would shift focus to creating money instead. "We are very close to zero. What we are doing now is switching to injecting money into the economy directly."

Link to The Guardian

Bank creates cash: 'This is the last roll of the dice - an unconventional weapon'

Larry Elliott on quantitative easing - printing money - Audio link

Is the decision to print money right? The experts think so. But ... Link

The Global Downturn ... in graphics

BBC News has produced a series of key indicators illustrating the results of the crisis in global financial markets. Huge amounts of money have been committed in financial support for banks. Governments are spending billions of dollars to kick-start economic growth. Measures include tax cuts and building projects. The financial landscape has changed dramatically, with several giants of the business world disappearing. The UK has spent £94bn to prop up Royal Bank of Scotland, HBOS and Lloyds TSB as well as nationalised Northern Rock and parts of Bradford & Bingley. The Treasury and the Bank of England have pledged hundreds of billions of pounds of further support for the fragile banking system. World economic growth is expected to slow sharply, with the UK among the hardest hit. Developing countries such as China and India should fare better. As countries try to spend their way out of recession, debt levels are forecast to rise. Interesting comparisons of the UK, USA, Germany and France.

Link

Scotland to impose minimum price on alcohol

Measures to tackle alcohol abuse by stopping cut-price offers have been outlined by the Scottish Government. It has proposed a range of measures including the radical step of a minimum price per unit. It would be the first country in Europe to take the step. The details of the price to be set will be worked out with economists to find the most effective level. The blueprint said the amount of advertising by supermarkets over recent months suggested that cheap alcohol did play a key role in determining where people shop. Health Secretary Nicola Sturgeon said: "Plummeting prices and aggressive promotion have led to a surge in consumption, causing and adding to health problems ranging from liver and heart diseases to diabetes, obesity, dementia and cancers.

However, the proposals have not been universally welcomed. Fiona Moriary, director of the Scottish Retail Consortium, said the plans would add costs to responsible shoppers without making any difference to irresponsible drinking. She said: "Irresponsible drinking is not about price or availability yet this is the main focus of the government's approach. We need to develop solutions that educate rather than alienate, instead the government has retreated to its bunker and is neither listening to the evidence presented nor willing to tackle these issues in a consensual manner." The Portman Group, an alcohol industry body which promotes responsible drinking, said the government was not listening to reason. Chief executive David Poley said: "People who drink to get drunk would not be influenced by these measures

Link

Do you think setting a minimum price for alcohol will reduce consumption? What factors will determine its success?

What externalties ar associated with excess drinking? Even if price controls don't reduce consumption is it something that could have benficial effects?