Today we got the monthly inflation figures. As I expected - but, apparently, "many economists" did not - the inflation rate has risen again. The CPI - which is the figure preferred by governments because it is the lowest number - has risen to an annual 3.7%. The index that more nearly reflects the reality, the RPI, is back up at 4.8%. Sooner or later, they warn us, interest rates will have to increase. Interest rates should increase now. The base rate has stood at 0.5% - effectively zero - for 13 months now and has contributed greatly to devaluing the currency. Further the Bank of England has poured £200,000,000,000 of newly printed money into the economy - mainly to help out with bank bonuses and the like - and this also has devalued the currency. The 25% drop in the value of sterling has shoved up the cost of imports and more and more we import food and manufactured goods. A low value currency is supposed to help exports and exports of manufactured goods have risen - but not that much. Last month we managed a record deficit on the balance of trade of nearly £9,000,000,000 - in one month! It's a staggering figure and just a small [small?] indicator of the economic mess that this country is in. When the much derided John Major left office in 1997, the balance of payments deficit was running at about £12 billion per year - not per month. That was bad enough and had been negative from soon after Margaret Thatcher became PM and basically kicked manufacturing into the long grass as nothing more than old fashioned tin bashing and the like. The trade deficit growing and growing is a national scandal ignored by government, who [which] for the most part understands sod all about science, engineering, technology and manufacturing - and nobody understands finance and economics. The low currency does not boost our exports because we have got nothing to sell. I know this is an exaggeration but it is not far off true. All our heavy engineering has gone, abandoned to countries in the far east. But not entirely. How come that a tiny country like Finland carries on building mobile phones and big ships, when, apparently, we can't make a light bulb or build a rowing boat. Does no one in government every get concerned about the mess created by themselves and their predecessors - of whatever party?
Next month the inflation figures will probably be even worse, boosted by the rise in VAT and by still rising commodity prices. Oil is now trading at $100 per barrel and that is not into the figures yet. The government and the Bank of England feel, clearly, that they can do what governments always do, inflate us out of debt. The trouble is they never do it completely and the residual debt has built up and up. The last government indulged in profligacy on a scale un-paralleled in our history - except in times of major wars - and via their spending through PFI and all kinds of madcap initiatives - massive increases in spending on the NHS and schools - they have built a government debt of almost unimaginable magnitude.
But while inflation goes up and stays up, savers like me, get interest on our savings of next to nothing. Some saving accounts are now so generous that a capital of £1,000 will produce interest of just 50p in a year. Based on the RPI, that same £1,000 will have devalued by £4.80 in the same period. It helps people with mortgages buying over-priced houses but savers out-number borrowers by 7:1 - although not in money value terms.
What should government do? Face reality. Put interest rates up, build more houses, direct investment towards manufacturing, scrap Trident, buy British wherever possible and cut spending on paper shifting and politically correct bureaucracy - we have suffered an orgy of that over the last 10 or 15 years.
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