jka on economics UK

UK inflation falls to 4.2% CPI basis, CPI-MK is on track

The rate of UK inflation fell from 4.5% in May to 4.2% in June according to latest ONS data. Despite a significant rise in food prices and transport costs. Recreation and culture prices fell to produce an overall slowdown in the headline rate by 30 points. RPI and RPIX inflation indices were up 5% year on year. Goods and service sector inflation were in line with the overall rate at 4.2%. 

A closer look at the sectors suggests the inflation watch is not yet over. Food inflation was up by 6.9%, alcohol and tobacco increased by 9.6%, transport costs were up by 7.9% restaurants, hotels and even household goods and services were up by 4.5%.

The biggest impact to the lower rate was the recreation and culture sector. Games, toys and hobbies, computer games, consoles, digital cameras, TVs and other electricals were the main contributors to a lower rate of inflation. 

As if three inflation indices were not enough to provide some confusion CPI-Y and CPI-CT also slowed. Only CPI-MK, the Governor’s favored measure of inflation remained constant and on target at 2%. 

Sign up today and "subscribe" for e-mail notification of updates. Or follow me on Twitter @jkaonline or why not join a great network on LinkedIn.

The views expressed are my own and in no way reflect pro.manchester policy. In no way should the comments be considered as investment advice or guidelines or reflect political bias. UK Economics news and analysis : no politics, no dogma, no polemics, just facts. JKA is a visiting professor at MMU Business School, an economist and specialist in Corporate Strategy, educated at LSE, London Business School with a PhD from Manchester Metropolitan University.

 

UK Trade deficit : Jabberwocks, Jormungands and J Curves - but no march of the makers

This week the ONS released the UK trade data for May. So much for rebalancing the economy towards export led growth. The seasonally adjusted deficit in goods was £8.5 billion in May compared to 7.6 billion in the prior month. For the second quarter as a whole, the deficit is likely to be £23.6 billion compared to £22.2 billion in the first quarter and £23.1 billion in the second quarter last year.  

The trade situation is not getting any better. This is a further blow to lovers of devaluation and the J curve everywhere. Florence Nightingale would say of hospitals, the first requirement is they should do the sick no harm. The same should be demanded of economists in relation to the economy.

If devaluation were a cure for the ills of the British Economy, the UK would be one of the strongest economies in the world. There appears to be some thought than a further round of depreciation is required to resolve the trade imbalance. Heaven forbid, it would be to push the infant deeper in a desire to induce a swimming motion. 

Earlier this year, the agents of the Bank of England were despatched to the four quarters of the UK to understand why, despite the weakness of sterling, there had not been a resurgence of manufacturing, especially export led manufacturing to resolve the trade imbalance. No copper in Cornwall, no tires in Wolverhampton, no jabberwocks, jormungands nor J curves.  

Several months ago I held a long week -end e-debate with David Smith about this very subject. DS was gradually (but not completely) losing faith that weaker sterling would induce a trade miracle. Still waiting for the J curve to effect, like a Saturday night drunk waiting for the last bus long after mid night. Sometimes waiting is better the alternative reality ie the inevitable walk. In relation to trade, the reality is the J curve belongs in the dustbin of economic thought along with the march of the makers, gapology and inflation theory. 

There is no march of the makers, there is no export led growth, there will be no rebalancing of the economy unless more is done to stimulate banking, financial and professional services growth instead of driving service sector earners off shore. It is time to accept as far as a manufacturing resurgence is concerned, the last bus has long gone.

Sign up today and "subscribe" for e-mail notification of updates. Or follow me on Twitter @jkaonline or why not join a great network on LinkedIn.

The views expressed are my own and in no way reflect pro.manchester policy. In no way should the comments be considered as investment advice or guidelines or reflect political bias. UK Economics news and analysis : no politics, no dogma, no polemics, just facts. JKA is a visiting professor at MMU Business School, an economist and specialist in Corporate Strategy, educated at LSE, London Business School with a PhD from Manchester Metropolitan University.

 

UK GDP - is there something horrible in the unemployment figures?

The labour market statistics were released on Wednesday. At first glance, the trends are in the right direction. The number of unemployed people fell by 26,000 over the three months to May to a level of 2.45 million. The unemployment rate was 7.7%. The number of unemployed for over one year fell by 37,000 to a level of 807,000. The economy continues to recover albeit more slowly.

The claimant count on the other hand increased by 24.5 thousand to a level of 1.52 million. In fact the claimant count has been increasing for the past four months. How can the unemployment figures be falling as the claimant count is rising? It is becoming increasingly difficult to read the data. 

The official explanation is the two datasets measure different things at different times. In addition, the Government is moving thousands of single mothers off income support onto unemployment benefit. The switch is causing the number of people on the dole to rise dramatically.

The claimant count remains a valuable indicator of the health of the economy. It is a coincident indicator. It used to be considered a lagging indicator, as layoffs reacted to a downturn in the economy. In fact chart 2 suggests it has become more of a leading indicator giving a clear indication of where the economy is heading. Claimant count lead the down turn in the GDP figures in 2008 and foretold of the recovery in 2009. It also warned of the slow down in the second half of 2010.

The message from the latest data is very worrying, growth year on year could be at best flat or even negative in the second quarter. The latest NIESR estimate suggests growth on the second quarter is just 0.8% year on year.  This looks to be too optimistic. The preliminary estimate of GDP is released later this month. It could look horrible. Our forecast for growth in the year will be downgraded yet again in the Q3 review. There may be no rush to put up interest rates this year. Real incomes are under severe pressure. Is government policy grinding growth out.

Sign up today and "subscribe" for e-mail notification of updates. Or follow me on Twitter @jkaonline or why not join a great network on LinkedIn.

The views expressed are my own and in no way reflect pro.manchester policy. In no way should the comments be considered as investment advice or guidelines or reflect political bias. UK Economics news and analysis : no politics, no dogma, no polemics, just facts. JKA is a visiting professor at MMU Business School, an economist and specialist in Corporate Strategy, educated at LSE, London Business School with a PhD from Manchester Metropolitan University.

 

UK manufacturing in May - March of the Makers - getting out of step

The Chancellor of the Exchequer has declared the march of the makers is underway tasked with rebalancing the economy in an export drive to build the big society. Let’s hope someone has the map and the grand plan, for at first glance the manufacturing figures for May suggest the marchers are slowing down and getting out of step.

Overall the figures for May look pretty weak. Year on year the growth is just 2.8%, a significant slow down from the start of the year. This is still much better than April.  A month in which weakness is explained by the Royal Wedding, the Bank Holiday and the Japanese tsunami impacting on car manufacturing supplies in the short term. 

Strong sectors in May were food, drink and tobacco (4.7%), textiles (7.7%), machinery and transport equipment. Consumer durables were up by 4.8%, capital goods were up by 3.3%. Engineering volumes were up by 4.5% but consumer non durables were up by just 1.5% and basic metals by the same order. 

It is hard to see why the overall figure is so weak. Wood, coke, chemicals, are the laggards along with non-metallic minerals. Someone appears to have switched off the power supply as electricity output fell by 1.5% and gas output fell by over 23%.

At this stage in the cycle, the manufacturing recovery is volatile. The May figures are not that bad but we have to be realistic. There is no real march of the makers set to rebalance the economy. Manufacturing has recovered by just 7.7% from the low in August 2009. It is still down by 9% from the peak in February 2008. It is more of a regrouping than a march, a recovery of sorts but still a long way off the top. Like falling off a cliff and waking from a coma. There is still much to be done to get back to where we were.

In Cromwell’s army, recruits didn’t know left from right. Marching drills were kept in line with the call of hay, straw, hay straw, as opposed to the more conventional left right, left right. Farm produce was tied to the legs of the luckless legionnaires to ensure one foot went in front of the other with some kind of uniformity. 

To understand the march of the makers in 2011, picture the army with one foot dipped in the excrement of an adult male bovine animal and the other wrapped in it’s skin. Or is it the other way round? We have to get this right. We can’t formulate economic policy with sound bites from the Bullingdon boys. A hard look at the data would offer more scope for realistic policy.

Sign up today and "subscribe" for e-mail notification of updates. Or follow me on Twitter @jkaonline and why not be LinkedIn : John Ashcroft. We are moving to a new site soon!

The views expressed are my own and in no way reflect pro.manchester policy. In no way should the comments be considered as investment advice or guidelines or reflect political bias. UK Economics news and analysis : no politics, no dogma, no polemics, just facts. JKA is a visiting professor at MMU Business School, an economist and specialist in Corporate Strategy, educated at LSE, London Business School with a PhD from Manchester Metropolitan University.

Producer Prices rise by 5.7%, input prices rise by 17%, it’s another blow to gapology

Producer output prices increased by 5.7% in June compared to 5.4% in the prior month. This is almost three times the CPI target rate and a further blow to gapologists everywhere. Economics is often beset by fashion and more beleagured by dogma. Inflation theory is no exception. In 1970 Milton Friedman would have us believe that inflation is always and everywhere a monetary phenomenon. The oil price rise of 1973 sort of downed the MF helicopter. 

In the early 1980’s, Lawson and others had us believe that government borrowing led to an increase in M3 and M4 money supply directly impacting on the inflation rate, a rational justification for dramatic spending cuts. I could never get by head round that and struggled with a paper on the subject for weeks.

In the mid eighties, the Bank of England believed that interest rates had no direct impact on consumer spending, the “monetary mechanism impacted on the economy via the investment cycle.” The problem was the BOE models had not adjusted to the Thatcher generation of mortgage laden home owners. An increase in interest rates was as as subtle as a pickpocket lifting the wallets of the vulnerable home owners.

In the early 1990s the relationship between the output gap and inflation rate was flagged by Goldman Sachs. It isn’t that GS have the best economists, they are just better at marketing them. For several blissful years, the relationship held, then started to break down. Apologists tried to explain the failure by “loss of capacity in the downturn”, the debate for me has long been exhausted and futile. It really is time to move on. Service sector economies don’t really have limits to capacity.

So back to the produce prices data for June. The headline rate hit 5.7% driven by increases in petroleum prices (16.5%), food (8.9%) and chemicals. The headline rate for input prices hit 17% with staggering increases in oil (40%), metals, (18%) chemicals (13%)  and food (13%). 

Input and output prices are coincidental and highly correlated (.851) with some evidence of a one month lag to impact (.854). They are also highly volatile and vulnerable to oil price shocks as the spike in 2008 attests. The Bank of England believe the spike in commodity prices will pass and inflation will return to target in the due course of time. 

The MPC are beginning to look like a bunch of economists huddled in a storm shelter in Kansas hoping the tornado will pass by. It really is time to face the storm. In 2008, oil prices were driven higher by speculative trading and large derivative positions. The subsequent fall, reflected the closing of short positions pushing oil underground to $40 a barrel. The trend is for higher and higher prices as the high growth nations and China in particular places great demands on finite resources. Gapology is dead and monetary policy needs to reflect that. The increase in output prices to almost 6% with a trend output gap of the same dimension should be adequate evidence.

Sign up today and "subscribe" for e-mail notification of updates. Follow me on Twitter @jkaonline or join me on LinkedIn. This blog will soon be moving to a new website. It's going to be really cool!

The views expressed are my own and in no way reflect pro.manchester policy. In no way should the comments be considered as investment advice or guidelines or reflect political bias. UK Economics news and analysis : no politics, no dogma, no polemics, just facts. JKA is a visiting professor at MMU Business School, an economist and specialist in Corporate Strategy, educated at LSE, London Business School with a PhD from Manchester Metropolitan University.

 

Why is the Euro so strong, given problems with the Olive branch?

Planning a trip to France or Spain this Summer? Ever wondered why the Euro is so strong against Sterling. With a spot rate around 1.12, one hundred pounds would buy around one hundred and five euros. Living on a fixed pension in Spain, the weakness represents a drop in income of thirty six per cent over ten years. Why is Sterling so weak against the Euro?

According to some the Euro is near collapse with reluctant Franco German support for the Olive branch of the Euro. The currency caution is “Beware of Greeks needing bailouts”, for they will soon be followed by the others in the PIG pen. Portugal, Italy, Greece, Spain are queuing at the trough, the system will collapse say some. From a macro economic and political risk perspective, a strong Euro doesn’t make sense. 

Monetary considerations offer some support given the interest rate disparity between the 50 basis points available in London compared to the 50 basis points deposit facility and a 1.25% available for main refinancing operations available in Euroland. Think of the 2% marginal lending facility from the middle of April and the capital pull makes some sense. 

But the fall in Sterling began long before the interest rate spreads opened up. The Sterling effective exchange rate has fallen by almost 25% since 2008. Examine the charts and the fall in Sterling is not universal. A cable rate (Dollar Sterling) of 1.62 isn’t that bad in 2011. It was actually 1.60 eleven years ago. 

A rate of 1.12 against the Euro is really mis priced. The problem is not Sterling against the Euro, it is the Euro rate against the Dollar. Compare the weakness of the Dollar. It has fallen from 1.18 to around 0.70. A decline of forty per cent. Against the yen, the fall has been almost sixty per cent.  

To understand, look back, in history to the dilemma of the Bank of France at the end of the 1920s. This was the “end of era” phase of Sterling as the world reserve and the last flap for Gold. France with significant sterling holdings had to divest but in a way which didn’t overly damage the exit price. 

Consider China with some $3 trillion of reserves. The Middle Kingdom has to diversify away from the imperilled dollar. The dollar is an end of era reserve currency. Hence the quest for a hybrid option in Special Drawing Rights, SDRs or a return of Keynesian Bancor from the Asean block.

It is estimated that already over 20% of China’s reserves are in the Euro. China has built the longest bridge in the world, not the Qingdao bridge, [pictured] but the financial bridge from Beijing to Berlin. China needs a strong Euro to delay the day when the renmimbi will rule. Hence the offer from Chinese premier Wen Jiabao to buy Euro bonds and landmarks in Greece. Parthenon not the Pound.

The strength of the Euro is a challenge to holiday makers, but it is the weakness of the dollar which is the challenge to policy makers. It is the strength of the Asian economies and China specifically that pose the real policy dilemma for the UK. A sterling recovery may take longer than we think. 

An extract from China - Return of the Middle Kingdom - The impact of China on the world economy. John Ashcroft 2011.

 Sign up today and "subscribe" for e-mail notification of updates.

The views expressed are my own and in no way reflect pro.manchester policy. In no way should the comments be considered as investment advice or guidelines or reflect political bias. UK Economics news and analysis : no politics, no dogma, no polemics, just facts. JKA is a visiting professor at MMU Business School, an economist and specialist in Corporate Strategy, educated at LSE, London Business School with a PhD from Manchester Metropolitan University.

 

#GMTweetmap How big is the Greater Manchester Twitter population? GM is the Twitter Capital outside of London

It is estimated there are some five million users of Twitter in the UK but this figure has never been fully accredited as far as I can determine. It is also estimated the fall off rate, or lapsed rate, is quite high, as much as 40% in the first three months. Many register and fail to follow through with a good Twitter programme for tweets, friends and followers.

To estimate the Manchester population, we can get some assistance from ranking sites such as http://twitaholic.com. Globally, we discover that Lady Gaga has over eleven million followers and is following 143,000 people. That must keep her social media team pretty occupied. More so Barack Obama having to track 700,000 people tweeting and being followed by 8.7 million people. That must be quite the challenge for the SM team, the FBI and the CIA.

The http://twitaholic.com. search for Manchester produces a top one hundred list which is neither clean or up to date. It also includes media and sports stars which we would wish to eradicate from the pro.manchester #GMTweetmap. It provides some useful guidelines and names for inclusion but suggests only seven hundred followers are needed to get into the top one hundred.

A better site for purpose is http://followerwonk.com. A search for Manchester produces a return of over 60,000 twitter users (60,609). This compares well with Liverpool (28,978), Glasgow, (27,808), Leeds (23,457), Bristol (22,636) and Edinburgh (19,241). Manchester is clearly the Twitter capital outside of London. [London has 369,033 users].

If the UK gross population is five million for Twitter, the Greater Manchester estimate would be around 200,000 maximum. Allowing for Home Counties bias, and a high wastage rate, the http://followerwonk.com figure is a great start point and represents a fantastic sample for analysis.

Analysing the data, 80% of twitter users in Manchester have less than 150 followers. To be in the top 20% you would need an average of 685 followers and over eleven hundred to be in the top 10%. Yes it is true, I have undertaken that analysis. It makes a great long tail profile.

As for the @pro.manchester #GMTweetmap, the results can be downloaded Download @promanchester #GmTweetmap Individuals. We rank our own top 250 key Social Media gurus in the city. There appears to be a near 60:40 male:female ratio. To get on the map follow me @jkaonline. The automated web site will follow in due course. Check it out. Are you on the map?

Sign up today and "subscribe" for e-mail notification of updates.

The views expressed are my own and in no way reflect pro.manchester policy. In no way should the comments be considered as investment advice or guidelines or reflect political bias. UK Economics news and analysis : no politics, no dogma, no polemics, just facts. JKA is a visiting professor at MMU Business School, an economist and specialist in Corporate Strategy, educated at LSE, London Business School with a PhD from Manchester Metropolitan University.

Groupon IPO - things going well - send more money - the burn rate is back.

“The Groupon IPO filing is out, and, as expected, it’s hugely entertaining. The risks section alone is more than 13,000 words, or around the length of a decent-sized novella” says Paul Kedrosky, blogging with Bloomberg this week. He even encloses a word cloud of the risks section. 

The filing is worth a read. It begins with a caveat : “If we fail to retain our existing subscribers or acquire new subscribers, our revenue and business will be harmed.”

You can see the problem. Groupon lost $389.6 million in 2010 on revenues of $713.4 million. In the first quarter of 2011, revenues had soared to $645 million but the losses were over $100 million. The marketing spend in the first three months was $400m that’s around 60% of revenues. With a gross margin of 40%, it creates something of a problem for the bottom line. The accumulated deficit was $522.1 million as of March 31, 2011. 

Revenues have increased from $30 million in 2009 to $713 million in 2010 and in 2011 could hit $2.5 billion (pro rata basis). Subscribers have increased from 50 million in 2010 to 80.1 million in the first quarter of 2011. 

The company turned down a $6bn approach from Google in December. There was speculation earlier this year that Groupon could raise as much as $1bn in an IPO, which could value the daily deals site at between $15bn and $20bn.

The value is in the database of 100 million plus subscribers which should be achieved this year. The issue is the sustainability of the model once the cost of acquisition or transaction is trimmed. The average subscriber revenue in 2010 was $14.10 and in the first quarter of 2011 was $7.75. The acquisition and marketing cost per subscriber was $8.64 in 2010 and $4.83 in the first three months of 2011.

The chart illustrates the revenues per subscriber in Chicago, Boston and London. The trend is to just over $12 over time. It is a huge churn of a low average subscriber value and an average transaction value of $22.00.

As a chief exec of a large organisation, the one message from the front line we used to dread was “Things going well send more money.” The dot.com boom has been and gone but the “burn rate” is back.

The risks are weighty and fully explained in the 13,000 word risk section.

"We anticipate that our operating expenses will increase substantially in the foreseeable future as we continue to invest to increase our subscriber base, increase the number and variety of deals we offer each day, expand our marketing channels, expand our operations, hire additional employees and develop our technology platform."

"These efforts may prove more expensive than we currently anticipate, and we may not succeed in increasing our revenue sufficiently to offset these higher expenses. Many of our efforts to generate revenue from our business are new and unproven, and any failure to increase our revenue could prevent us from attaining or increasing profitability." 

"We cannot be certain that we will be able to attain or increase profitability on a quarterly or annual basis. If we are unable to effectively manage these risks and difficulties as we encounter them, our business, financial condition and results of operations may suffer.................." You have been warned.

Sign up today and "subscribe" for e-mail notification of updates. Groupon IPO 

The views expressed are my own and in no way reflect pro.manchester policy. In no way should the comments be considered as investment advice or guidelines or reflect political bias. UK Economics news and analysis : no politics, no dogma, no polemics, just facts. JKA is a visiting professor at MMU Business School, an economist and specialist in Corporate Strategy, educated at LSE, London Business School with a PhD from Manchester Metropolitan University.

Rebalancing the UK economy is incoherent mishmash verging on codswallop says Tyrie

Incoherent “mish mash” verging on “codswallop” is how plans to rebalance the economy have been described by Andrew Tyrie, Chairman of the Commons Treasury Select committee according to an article in the Financial Times on Bank Holiday Monday.  “I don’t think ministers have used the term with sufficient precision” said the no nonsense MP for Chichester. I like Andrew Tyrie, he gained a formidable reputation following his aggressive cross-questioning of the bank bosses during the banking crisis and has twice been voted The Spectator’s back bencher of the year.

We used video clips of Andrew at the pro.manchester Business Conference in March and hope to have the real version with us next year.  “Rebalancing” has entered the lexicon of the coalition along with the “Big Society”. Margaret Thatcher, famously denounced the existence of society of any dimension, it would be interesting to note what the Baroness would make of this novel trope. As for “rebalancing” the economy and the “march of the makers”, this really is rhetoric from the debating room rather than a policy for action.

Roger Bootle of Capital Economics has suggested that rebalancing was acceptable rhetoric, “The idea of lifting manufacturing from under 12% of the economy to 15% in a few years was “plausible”. Blimey, that’s a 30% increase in output from a sector which is still recovering from a near 20% down turn during the recession.

As for march of the makers the government places great emphasis on the Dyson ‘Ingenious Britain’ report, this from a man who famously marched all of his makers to Asia to minimise production costs. 

In 1970, manufacturing accounted for almost 30% of UK GDP. It was the year in which I graduated from LSE and joined almost one hundred graduates on an eighteen month management training scheme with Tube Investments, one of the largest manufacturing conglomerates in the UK. 

The initial three months were spent at Oldbury Technical College in the West Midlands. We did welding, metal work, patent making and casting as well as a stream of management training classes. Each week, we would visit a company within the group, British Aluminium, Bacofoil, Raleigh Bicycles, Creda cookers, Stainless Steel manufacturers, Exhaust manufacturers, tube makers. There can be nothing more dramatic than the Pilger process, aluminium extrusion or steel production to impress a social scientist graduate.

One of the highlights of the three months was a visit to Round Oak Steel works, where we did see steel being poured in what is now probably the lingerie section of Marks and Spencers in the Merry Hill Shopping centre. So many of the Tube Investment names and processes have disappeared from the UK.

Manufacturing now accounts for around 11% of output compared to almost 30% in 1970. Manufacturing is experiencing above trend growth as it always does at this stage in the cycle. It’s like falling off a cliff and recovering from a coma, a recovery of sorts but still a long way off the top. An industry struggling to find its feet again is a rebalancing of sorts, but it is more like a prize fighter staggering to his feet after a near knock out punch. It is rebalancing George but not as you mean it.  That's verging on codswallop.

Financial Times : UK Economy Plans branded incoherent 30th June 2011

Sign up today and "subscribe" for e-mail notification of updates.

The views expressed are my own and in no way reflect pro.manchester policy. In no way should the comments be considered as investment advice or guidelines or reflect political bias. UK Economics news and analysis : no politics, no dogma, no polemics, just facts. JKA is a visiting professor at MMU Business School, an economist and specialist in Corporate Strategy, educated at LSE, London Business School with a PhD from Manchester Metropolitan University.

Will UK inflation (4.5%) be back to target before the Governor of the Bank of England retires?

Mervyn King completes his second term as Governor of the Bank of England in June 2013. Will inflation be on track by then? It could be a close run thing? 

The inflation figures were released last week but I was a little preoccupied and didn’t get to pass comment at that time. Just as well because in the Sunday Times, an article on Andrew Sentance “The rate hawk who rocked the bank” featured a great mock up of Andrew, renowned guitarist and Led Zeppelin fanatic and the Governor of the Bank of England, on song lyrically if not in economics think. Too good to miss.

The photo can be discerned under the graph of the inflation chart, denoting the separation of goods inflation and service sector inflation. Service sector inflation has averaged 3.6% for almost twenty years and goods inflation has averaged 0.8%. This is why we are sceptical the inflation target will return to 2% in the medium term as the Bank and the OBR insist. 

So what of the inflation figures in April? They are pretty bad with inflation CPI basis at 4.5% up from 4% in March. RPI inflation was 5.2% and RPIX was 5.3%.

For those lovers of the inflation alphabet, CPI-Y and CPI-CT were also heading towards 3%. Only inflation CPI-MK and GPI-GOV (i.e. core inflation eliminating anything above and below the inflation target) is on track.

Earlier this month, the Bank were warned of the potential, if not imminent, risk of the loss of credibility if inflation continues to rise towards 5% CPI basis. To strip outliers and identify core inflation, as the Bank is wont to do, offers little consolation to motorists, filling the tank and housewives undertaking the weekly food shop. 

Biggest contributors to inflation in April were transport costs and alcohol and tobacco. Food, education, household services, restaurants and hotels were in line with the overall CPI figure. Service sector inflation was 4.9% and goods inflation was 3.9%. The ONS publish a figure for CPI inflation excluding, energy, food, alcohol and tobacco. Why? Even this figure was 3.7% almost twice the level of the target.

The Governor had to write another letter to the Chancellor of the Exchequer explaining that VAT, energy and import prices were the culprits in the inflation acceleration. All external to the control of the MPC. In the medium term within two to three years everything will be OK.  

As the letter said “The MPC expects inflation to fall back through 2012 and into 2013, by which time the chances of inflation being above or below the target were broadly balanced.”

Mervyn King completes his second term of office in June 2013. Will inflation be on track by the end of the second term? It could be a close run thing? 

Robert Plant, (vocalist and lyricist of Led Zeppelin) and the Governor were both born in 1948 and were both educated in the West Midlands. Plant was born in Kidderminster and The Governor was educated at Wolverhampton Grammar School. “When I was a kid, I used to hide behind a curtain at Christmas and pretend I was an economist” said Plant. [citation needed]. Things could have been so different. JKA 

Sign up today and "subscribe" for e-mail notification of updates.

The views expressed are my own. In no way should the comments be considered as investment advice or guidelines or reflect political bias. UK Economics news and analysis : no politics, no dogma, no polemics, just facts. JKA is a visiting professor at MMU Business School, an economist and specialist in Corporate Strategy, educated at LSE, London Business School with a PhD from Manchester Metropolitan University.