Inflation Rears Its Ugly Head in Britain

Inflation hit record levels in the UK in August, despite the slowdown we’ve seen in consumer spending and consumer confidence.

The British haven’t seen inflation at such a torrent pace in over eight years. In the UK, the benchmark inflation rate is two percent… August’s rate came in at 2.4%.

What’s behind the rise? Higher fuel costs, of course! “There’s absolutely no doubt” that the jump in fuel costs is behind the slowdown in growth and the ramp-up in inflation we’ve seen, according to European Central Bank President Jean-Claude Trichet.

I know we’re complaining about a rise in fuel costs here too, but the 12.5 percent climb in fuels and lubricants on the consumer-prices index in the UK, combined with the slowing growth the country is experiencing, makes for a dangerous situation.

Already, British citizens are crippled under mounting debt, with bankruptcies at a record and interest-only mortgages overdue… spending’s already been cut back for the simple reason that there’s no money left to spend. Now, add in the reality of more expensive gasoline and home heating, and we have difficult times ahead.

In the opinion of the UK Chancellor of the Exchequer Gordon Brown, countries such as Britain must start implementing policies and actions to stabilize oil prices. How can they do this? Well, his current strategy is to work with the UK Treasury and the Bank of England to try to limit wage growth to try to beat the rise in inflation. Probably not what UK citizens had in mind…

“You’re going to go through a rough patch through the next six to 12 months,” said Deutsche Bank AG Economist George Buckley, “Inflation is going to be boosted by higher oil prices. There is a clear upward trend.” No kidding!

Expectations now are that we won’t see another interest rate cut in the UK this year, and the futures market supports this idea. This is probably for the best of the economy, but I’d bet thousands of UK citizens were counting on rate cuts to provide just a little relief from this difficult year.