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5 "Tells" that the Stock Markets Are About to Reverse

UK CPI Inflation Soars as RPI Deflation Comes to an Abrupt End

Economics / Inflation Dec 15, 2009 - 01:18 PM GMT

By: Nadeem_Walayat

Economics

Best Financial Markets Analysis ArticleThe Inflation mega-trend scenario that I have been writing on during the past month is starting to manifest itself as UK Inflation data for November illustrates showing the Governments preferred CPI inflation surging higher to 1.9% up from 1.5% and RPI reversing October Deflation of -0.8% to now stand at Inflation of +0.3%.


Deflationary forces as a consequence of the the bursting of the asset bubbles has fulfilled the deflation forecast for 2009 as per the original analysis of December 2008 - UK CPI Inflation, RPI Deflation Forecast 2009 that forecast Deflation into Mid 2009 targeting RPI of -1.2% and CPI of +0.9% to be followed by an uptrend into year end back into RPI inflation of +0.9% and CPI of +1.6% as illustrated by the below graph.

The forecast for UK inflation for 2010 and other trends are part of my inflation mega-trends scenario that I am in the process of writing up to complete before the end of December and to finally publish as an ebook that I will make available for free. Ensure you are subscribed to my always free newsletter to get the latest analysis in your email box and check my most recent articles on the inflation mega-trend at http://www.walayatstreet.com

UK Interest Rates

The UK base interest rate is being kept artificially low so as to enable the bankrupt banks to rebuild their balance sheets by overcharging customers against the base interest rate and the interbank market rate of 0.59% as the real market interest rates have been in a steady climb since March 2009 which has increasingly meant that the base interest rate has become irrelevant to the retail market place as explained in the article - Bailed Out Banks Not Lending, Sitting on Tax Payers Cash.

The outlook remains for rising market interest rates charged to retail customers regardless of the base rate having been held at 0.5% into the end of the year, which is inflationary in terms of rising mortgage costs.

Savers Forced to Pay for Bankster Crimes

Savers are being hit by the double whammy of 1.9% Inflation plus the 20% tax on savings and therefore require a minimum interest rate in the order of 2.30% just for savings to keep pace with inflation and taxes. This is set against the tax payer bailed out banks such as the Halifax paying a pittance of just 0.1% on across the range accounts from current accounts to savings accounts with other mainstream institutions not far better, which is a consequence of bailout out the bankrupt banks that has resulted in an artificial market heavily skewed in favour of the bailed out bankrupt banks making huge profits so that tax payer capital injections can be repaid, in-effect the government giving free cash to the banks to enable the banks to repay capital for political reasons. In effect the Banks and the Labour Government are systematically stealing the value of Savings.

The situation is even worse for Cash ISA holders as the tax payer bailed out bankster's hit new depths of paying ISA holders typically 20% LESS than comparable accounts, therefore are defrauding Cash ISA holders of their tax free allowances.

Under a free market system the banks would be forced to raise interest rates paid to customers to entice savers, however in today's market the Treasury and the Bank of England fund the banks to the tune of liabilities of £1.5 trillion that has resulted in the countries liabilities doubling from £1.7 trillion at the end of 2007 to £3.4 trillion by the end of this year on route towards liabilities of £4.75 trillion.

Debt Fuelled Economic Recovery Heading for Double Dip Recession

The UK economy remains on track to bounce back into the 2010 election, as indicated by June's in depth analysis, however this economic recovery is based purely on debt as shown by the graph below, as the Labour government's strategy is to deliver the next Conservative government a scorched earth economy.

Alistair Darling's forecast for government net borrowing for 2009 and 2010 in November 2008 totaled just £70 billion. However, since the amount of projected borrowing has mushroomed to £350 billion, which is set against my November forecast of £405 billion for 2009 and 2010 alone, with continuing subsequent large budget deficits thereafter of well above £100 billion a year.

Whilst many economists were surprised by Alistair Darling's April forecast that the UK Economy would grow by 1.25% in 2010 and 3.5% in 2011. However we need to consider the following in that 1.25% growth on the annual GDP of £1.2 trillion equates to growth of just £15 billion and for 2011; 3.5% growth equates to just £42 billion. Therefore the government is borrowing a net £175 billion for 2009 and £175 billion for 2010 to generate £15 billion of growth, and then a further £140 billion for 2011 for £42 billion of growth. Thus total net borrowing of £490 billion to grow the economy by just £67 billion, (£595 billion my forecast) which shows the magnitude of the scorched earth economic policy now implemented that literally aims to hand the next Conservative government a bankrupted economy that will be lumbered with the consequences of continuing huge budget deficits and therefore necessary deep cuts in public spending.

Whilst the OECD and other mainstream organisations / press have been busy in recent months revising their economic forecasts, my forecast remains as is and continues to project towards post general election tax hikes and deep public spending cuts that will in my opinion trigger a double dip RECESSION during 2011 to 2012 as illustrated by the graph below.

Bankrupting Britain Debt and Liabilities

The total liabilities as a consequence of bailing out the bankrupt banks and debt fuelled economic recovery remains on target of £4.75 trillion by the end of 2013/14, which confirms that Britain remains firmly on the path of a probable decade of economic stagnation coupled with high inflation i.e. stagflation.

For more on my NEW INFLATIONARY scenario, ensure your subscribed to my always free newsletter to get the full implications in your in box as it will be one of my seminal pieces much more so than even the Stocks Stealth Bull Market Scenario of March 09 and Crude Oil Top of July 08, or the UK Housing Market August 07 Top and Bear Market were before it amongst many others.

Source: http://www.marketoracle.co.uk/Article15830.html

By Nadeem Walayat
http://www.marketoracle.co.uk

Copyright © 2005-09 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on the housing market and interest rates. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 400 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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