HAMISH MCRAE: I expect to hear lots about the 'R-word' next year
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There is, I am afraid, no Christmas cheer this year. We have just had a blisteringly bad few days in both financial and economic terms. The Footsie has lost more than 200 points, making this the worst week for more than a year, but that is just the outward sign of a far deeper malaise.
The Bank of England now expects zero growth for the last three months of this year, much worse than its previous forecast. Inflation is climbing relentlessly, with the Consumer Prices Index (CPI) at 2.6 per cent, and forecast to go over 3 per cent next year.
The Government's preferred measure of inflation, the CPIH, which takes into account the cost of housing for owner-occupiers, is 3.4 per cent. The yield on ten-year gilts is now well over 4.5 per cent, the highest this year. If the Government has to pay more to borrow, so do the rest of us: higher bond yields push up the interest on fixed-rate mortgages. Retail sales are flat, up just 0.5 per cent year-on-year in November. And business confidence is at a two-year low.
The inflation outlook is particularly worrying as a lot of the forthcoming price increases are either the result of Government action, or are indexed to past inflation as measured by the Retail Price Index (RPI). For example, Londoners have just been told their Tube fares are going up by 4.6 per cent in March, 'in line with national rail fare increases across the country'.
Putting VAT on private school fees and increasing vehicle excise duties will push up the CPI by about 0.3 of a percentage point. And most of us keep receiving emails telling us some service or other is being increased by the RPI – which at 3.6 per cent is a full point higher than the CPI.