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

UK Inflation CPI Slumps to 4.1% Whilst RPI Crashes to 3%

Economics / Inflation Dec 18, 2008 - 11:46 PM GMT

By: Nadeem_Walayat

Economics Best Financial Markets Analysis ArticleUK inflation as measured by the CPI continued its sharp fall following Octobers slump from 5.2% to 4.5% by falling in November by 0.4% to 4.1%. This follows hard on the heels of the Bank of England's continuing panic interest rate cuts that saw another 1% sliced off of the UK base rate at Decembers MPC meeting to 2% as the UK remains on target to experience a recession just as bad as that of the early 1980's. Meanwhile the RPI inflation measure crashed by 1.2%, falling from 4.2% to 3% as increasingly the RPI measure heads for true deflation during 2009 i.e. negative inflation.


British Pound Heading for Parity Against the Euro

Sterling has crashed by 30% against both the Euro and the U.S. Dollar and remains on target to fullfill earlier forecasts for to reach parity to the Euro and £/$ 1.37 by the end of January 2009.

Consumers to be Hit by Inflationary Price Hikes During 2009

Sterling's crash of 2008 confirms that goods in the shops will not remain cheap for long and thus shoppers should take the opportunity to buy during the stock sales of the next two months or so as the price for filling shop stocks later during 2009 will be significantly higher, as already holiday makers venturing abroad are experiencing the consequences of the crash in sterling that continues to take the British Pound towards parity to the Euro .

Gordon Brown Bankrupting Britain to Win the Next Election

Gordon Brown continues to lay the ground for an early general election, possibly as early as March 2009. The Labour government is adopting ever escalating reckless measures to turn the economy around that are to prove highly costly to Britain for many years in terms of loss of real value of asset values and disposable incomes as the debt burden and liabilities soar to beyond £3.2 trillions. This also creates a great deal of uncertainty and difficulty in generating forecasts, because it is unknown to what extent the governments liabilities will actually grow to.

The recent analysis - Bankrupt Britain Trending Towards Hyper-Inflation? , highlighted the dangers that the banking sector posed to the UK economy with the risks that should a wholesale nationalisation of the banks be required then that would lift total liabilities to the British tax payer by £5 trillion, in comparison to the £500 billion of official public sector net debt outstanding at the end of 2007. This extra liability would be on top of the deficit spending and borrowing binge that the government announced in the emergency budget and thus risked bankrupting Britain which would be manifested in a collapse in the currency and thus the inability of Britain to service debt denominated in foreign currencies.

UK Unemployment Now at 2 million

UK unemployment crept up by 39,000 for September to 1.864 million, and is on target to break above 2 million on release of data for December 2008. The unemployment claimant count surged in November by nearly 10% to 1.056 million, up 86,000 on the month and confirming that the pace of unemployment is fast accelerating which compares against Octobers rise of 25,000 and September's rise of just 20,000. The December unemployment data is due to be released during March 2009, therefore this is another pointer that suggests an early election may be called before headlines of 2,000,000 unemployed hit the mainstream press.

UK Interest Rate Forecast

The race is on to keep cutting UK interest rates towards ZERO before inflation takes off as the interest rate forecast graph illustrates. December saw a 1% rate cut with a similar cut now expected at the January MPC meeting which will take UK interest rates to just 1%, an all time low.

Deflation 2009 Followed by Stagflation in 2010

Deflation has not been seen in the UK since the 1930's Great Depression. The effect of deflation are worse than inflation as a deflationary spiral brings investment to a halt and the value of debts increases in real terms as wages contract, leaving borrowers worse off than people have experienced during the previous recessions of the post war period. The deflationary trend of late 2008 and 2009 was first warned of by myself way back in March 2008 - DELEVERAGING- Gold and Commodities Teetering on the Brink of a Bear Market? , the trend for which is now coming to pass as virtually all commodities have slumped following their forecast summer peaks.

For the latest in depth analysis and forecasts on the UK economy, interest rates and housing market subscribe to our always free newsletter.

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

Copyright © 2005-08 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 150 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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