Do they think we are stupid?

 As we are in an era of supply side inflation, I thought it would be interesting to ask Chat GPT what it would do? " how do you tackle supply side inflation?" Here's it's response with my commentary in italics: Supply-side inflation occurs when the costs of production for goods and services increase, leading to an upward pressure on prices. To tackle supply-side inflation, governments and central banks can consider various strategies: Structural Reforms: Implement long-term structural reforms to improve the efficiency and productivity of the economy. These reforms can include labor market reforms, deregulation, reducing trade barriers, and improving infrastructure. OK the government is trying to reduce trade barriers as a result of Brexit. It is not being done to tackle inflation. Not being done. Investment in Human Capital: Enhance education and training programs to improve the skills of the workforce. A more skilled workforce can lead to higher productivity and...

 Today the Office for National Statistics released the UK inflation data for the year to July 23. On the surface the headline news is positive - inflation is being tamed and it fell from 7.3% for the year to June 23 to 6.4% to July 23.  That's a 0.9% drop. Although it's never a good idea to do percentages of percentages but I will anyway!  It's an impressive 12.3% drop ! Sadly the Bank of England will almost definitely increase interest rates again.  6.4% is still higher than their target of 2% and the unemployment increase from yesterdays data wasn't big enough. They want to punish us naughty people that are causing inflation. They will prescribe more bad medicine. Rate hikes - here they come. The reality remains this inflation is supply side inflation not demand side inflation. The reality remains that food inflation is high and the UK imports >50% of food so we are importing inflation. The reality is the bond yield curve has inverted - a clear signal we are ent...

The ONS has published the latest labour market overview .   It looks like the Bank of England's toxic medicine of interest rate rises is slowly but surely rippling through into the economy and bringing the UK closer to recession. Here's the headlines: Job vacancies in the quarter to July 23 fell by 66,000 Unemployment rose by 0.3% to 4.2% Regular pay growth was 7.8% In otherwords unemployment is rising and the pool of available jobs is falling. The ONS mentioned the regular pay growth was due the NHS one-off bonus payments made in June 2023.  The report covers the period April, May and June.  Some other data covers other periods. This payment was a one-off payment of between £900 and £1190.  With the NHS reported to have a workforce of around 1.7 Million this equated to an overall payment of more than £1.53 Billion by tax payers. Interestingly the ONS neglected to mention that the pay growth for Apr-June 23 compared to Apr-Jun 22 included an increase in the...

 In the UK, Junior Doctors are striking over pay.  Is this justified? The NHS is a vast organisation. According to Wikipedia, it's the 5th largest in the world. Yes THE WORLD.   The organisation is on a similar scale to all McDonalds employees in the world.  It is reported to employ 1.7 Million people. Given the UK population is supposed to be  67.7Million, that's a reasonable percentage of the population is employed by the NHS. As of September 2022, there  are 75,000   junior doctors in the UK - the total  has increased 33%  from 56,000 since September 2015. Overall the NHS performance since September 2015 has deteriorated with significant increases in waiting times. So the additional 20,000 Junior doctors has not improved performance. There are 132,000 doctors so approximately 57,000 senior doctors/consultants in addition to 351,000 nurses.  This totals 483,000 clinical staff.  It's not clear what the other 1.2 Million p...

 Today the ONS published the UK growth data for the period May-June 2023.  Well the good news is the economy grew by 0.2%.  Considering May was negative (-0.1%), this is positive news.  May growth was explained away on bank holidays and the Kings coronation and apparently June's 0.5% was compensation for May's poor performance - maybe the weather also helped. Although we may view this as good news, the pessimists at Threadneedle Street are probably looking at this as bad news.  Their interest rates are not working and we need more of their evil poison. Although this may seem good news, GDP is pretty much at pre pandemic levels.  If growth had followed the same pre pandemic trajectory we would be at an index rating of about 105 compared to 100.  I'm not a great fan of GDP as a measure.  For example if everyone in the country replaces all light bulbs with LED light bulbs, GDP would fall.  We would be much more efficient, less wasteful etc yet G...

 Increasingly the Government is trying to position state pensions as a benefit. Something which could be deemed optional and based on means testing. For example just today the 10th August there is posturing that the state pension will cost more than education, policing and defence combined. Probably true. The reality is that the for the majority of people, state pension is something they have paid into throughout their working lives.  It is far from being a benefit. It is not general taxation.   If you have  made insufficient  contributions during your working life to the state pension, the payout will be pro rata reduced.  You can "buy" missing contributions or AVC. This is a voluntary payment - generally you don't volunteer to pay additional tax.  It feels pretty much like a defined benefit pension scheme or at least a defined payout scheme.  Now there are problems with the state pension 1/  The government has not saved or invested the...

 With the Bank of England blindly raising interest rates without waiting to see the impact the increases have on the economy, the prospect of a recession and high inflation (stagflation) looks highly likely. The chances of a soft landing are extremely unlikely.  It's a mythical beast which has rarely happened in history  and when it has happened it is more by chance than central bank superior intelligence and planning. Bond yield curves are considered the most reliable measure of a looming recession.  This is where the yield (interest rates) on short term bonds is more than long term.  In a normal market bond holders are rewarded with a higher yield for tying up their money for the long term. An inverted yield curve is where the opposite is true.  You get a better yield in the short term than the long term.  This is considered to be a reliable indicator of a recession because people are betting that central bank interest rates will fall in the long ter...

 With the Bank of England busy raising interest rates to punish the naughty people that have caused inflation on their watch, I thought it would interesting to look at money supply and see how it is impacted by interest rates. Classic monetary theory is that if you increase money in the economy, then there will be growth and if you remove money from the economy it will contract or go into recession. Therefore when the Bank of England raises interest rates it is reducing the money supply. The main measure of money supply is M1 which covers all money in circulation.  M0 is the measure of cash however with declining use of physical cash it is becoming a less meaningful metric. So here's the data from 2008 to May 2023 The Blue line is the money supply (in £M) and the red line is Bank of England interest rates.  From this I would conclude the Bank of England allowed the money supply to grow until 2020 - it looks like they were asleep at the wheel.  The drop in interest ra...

 The Bank Of England is hell bent on raising interest rates in a vague hope of controlling inflation and today's meeting resulted in the rather predictable outcome of raising interest rates from 5% to 5.25% This is the 14th increase in a row Here's my analysis of the June 23 BoE MPC increase Clearly this is causing  misery  to home owners, businesses and landlords.  However is this the right thing to do or is the BoE stupidity? Let's dissect the minutes. Firstly it states they have a plan - that plan is for the BoE interest rate to peak at 6% - so expect interest rate increases in October, December and February until we hit the magic 6% number.  They also state the average rate for 3 years (ie until 2026) will be 5.5% therefore another rate increase in October looks a safe bet. It looks like the era of low interest rates is definitely at an end. It does beg the question when we had ultra low interest rates for 12 years and low inflation, whether there is a real ...