Inflation increases to 3.5% in March

Inflation in the UK increased to 3.5% during March, as upward pressures on inflation came from food, clothing and the recreation and culture sectors. The CPI (consumer price index) rate increased from 3.4% in February , while the RPI (retail price index) rate shrank to 3.6% from 3.7% in February.

Prices in the food and non-alcoholic beverages sector fell by 0.5% between February and March, a lower rate than recorded during the prior year period, while increased fruit, meat and bread and cereals prices impacted the sector. In the clothing and footwear sector overall prices rose by 2.2% between February and March, while a slower rate of decline in the recreation and culture sector also helped push inflation upwards.

The biggest downward pressures on inflation came from the housing and household services sector where prices fell by 0.2% overall and the transport sector.

 

source “http://www.fundweb.co.uk/1049808.article?cmpid=14002&email=true ”

 

Politicians move to battle debt crisis

Markets in the Far East fell last night and the FTSE 100 fell this morning as politicians continue to battle the debt crisis.

In the Far East markets reacted badly to news of America’s downgrade with Japan’s Nikkei 225 falling 2.18 per cent to 9098 by close while in China the Shanghei Composite index fell 3.77 per cent to  2527.

The FTSE 100 fluctuated this morning and by 10am had fallen 0.76 per cent to 5207. This follows a fall of nearly 10 per cent last week.

Over the weekend, Standard & Poor’s announced it had downgraded America’s credit rating for the first time, from AAA to AA+, due to concerns about the way American politicians are responding to the escalating debt crisis. In Europe, the European Central Bank is to purchase Euro member state bonds in an attempt to allay debt concerns.

Latest news on the debt crisis:

* The Telegraph reports that Bank of England governor Mervyn King is expected to reduce the UK’s target range for growth.
* In an interview with The Sunday Times, Business Secretary Vince Cable warned that Britain could face a double-dip recession but rejected comparisons with the 2008 credit crisis.
* The European Central Bank has announced it is purchase Euro member state bonds in an effort to halt financial market contagion as markets opened this morning. A statement from the ECB, released yesterday, welcomed deficit cutting measures taken by Italy and Spain and welcomed a statement from France and Germany which pledged that the European Financial Stability Fund would take over paying for the purchases when it is fully up and running. The move is seen as a watershed moment because until now the ECB has maintained that responsibility for dealing with the Euro crisis rests with National Governments.
* Italy brought forward a pledge to balance the country’s budget from 2013 to 2014 to enable the move. Interest on Italy’s 10 year bonds reached 6.08 per cent on Friday, after hitting 6.4 per cent, the highest level since 1997. Spain’s bonds were offering 6.05 per cent. Some economists argue that anything higher than 7 per cent makes borrowing to fund Government spending unsustainable.
* On Sunday Angela Merkel appeared to support the move in a statement with Nicolas Sarkozy saying it was up to the ECB to decide when there was a material risk to financial stability. However, its been reported Merkel complained to Chancellor George Osborne in a phone call about European Commission President Jose Manuel Borroso’s claim more action was needed beyond what was agreed by European leaders in July.
* The IMF has welcomed the statements from the European Central Bank, Germany, France and the G7.
* Amid reports accusing European leaders of being absent in a crisis, George Osborne also called G7 leaders on Saturday from his holiday in California, stressing the interconnected nature of the European and American debt crises. Speaking to European Monetary Commissioner Ollie Rehn he suggested launching Eurobonds in exchange for more control over member states’ domestic economies.
* Standard and Poor’s is warning this morning that Asian sovereign ratings could face downgrades if global financial markets deteriorate. The ratings agency says its downgrade of US debt to AA+ on Friday would not weigh on Asian Governments ratings in the near term but added Asia-Pacific economies would have to support their domestic economies.
* The Australian market dropped 2 per cent as it opened and briefly rallied during the day but at close the S&P/ASX200 index was down 2.9 per cent.

“Money Marketing 08/08/2011

Mervyn King hints at May interest rate rise

Bank of England governor Mervyn King has hinted interest rates may rise in May, with further increases possible by the end of the year.
He says this prediction is based on bank rate increases “in line with market expectations”. Many experts have suggested a 0.5 per cent rise in rates is likely in May with further rises throughout the year.

King says three factors account for the current high level of inflation, including the January rise in VAT, the continuing consequences of the fall in sterling in late 2007 and 2008 and recent increases in commodity prices, particularly energy prices.

He says: “Although one cannot be sure, prices excluding the effects of these factors would probably have increased at a rate well below the 2 per cent inflation target.

“Inflation is likely to continue to pick up to somewhere between 4 per cent and 5 per cent over the next few months. That primarily reflects further pass through from recent increases in world commodity and energy prices.

“The MPC’s-central judgment, under the assumption that bank rate increases in line with market expectations, remains that, as the temporary effects of the factors listed above wane, inflation will fall back so that it is about as likely to be above the target as below it two to three years ahead.”
Last week, the Bank of England’s Monetary Policy Committee held base rate at 0.5 per cent for the twenty-third month in a row and held its quantitative easing programme at £200bn.