Firstly, I am not Longrider. Off the back of LR’s post on guest posting, I asked if I might submit the odd post. I have found it hard to keep my blog going, so it is fantastic to be able to piggy-back someone else’s, especially one of such quality. A big thanks to LR for the opportunity, and to him as much as anyone else I say – please feel free to rip my posts apart. I won’t be offended, as I blog partly to express my ideas and partly to learn. So rip away.
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Yesterday, UK inflation figures came out way above forecast, hitting a 28-month high of 4.4%. According to the Telegraph, this is a “shock jump”.
No it isn’t. Anyone with the mildest understanding of what has been happening knew inflation was well above what was being stated, and the egregious attempts by the Bank of England to blame commodity prices were nothing but hot air. When everyone feels like life is getting more expensive, sadly that’s usually because it is, and I’ll take anecdotal evidence of rising prices over the dodgy stats of a highly politicised Central Bank.
“February’s surprise rise will worry the Bank of England which has been battling to bring inflation back to its 2pc target.”
Nonsense, the BoE have pursued a Zero-Interest Rate Policy for 2 years, knowing full well the impact it would have on inflation. It was always going to end badly, but they don’t care because their independence is only valid as long as they toe the Government line.
“Sterling rose sharply against the dollar to $1.6393 – the highest level in 14 months – on expectations that interest rates will rise sooner rather than later.”
Yes and no. I work in Foreign Exchange so I know something of what I speak here. Sterling indeed rose, but it is worth noting two things.
1. EUR vs. GBP fell a little yesterday, but since mid-January it has risen from £0.8300 to £0.8750 (if you look at GBP vs. EUR that would be a fall from €1.21 to €1.14), so that tells you that the market is clearly expecting the European Central Bank to raise rates way in advance of the Bank of England. Bear in mind the European base rate is already 1.00% vs. the UK rate of 0.50%. This to me indicates a serious lack of confidence in the Bank of England’s ability to respond correctly to inflation, especially considering the disastrous state of the European economy.
2. Markets always buy the rumour and sell the fact. Smart investors knew GBP would rise off the back of strong inflation data, so were well prepared to buy it, or indeed had already bought some. Foolish investors bought after the rise, losing money when the pound drops again, as it is this morning. The short-term move yesterday really meant very little.
And this.
“The government plans to virtually elininate the budget deficit over the next four years.”
For God’s sake, make an effort guys.
1. “Elininate”. Really? F7 anyone?
2. “Elininating” the deficit only means they stop spending more than they receive, so this means the debt still continues to grow. Unless you spell it out each time, nonsense like this will keep confusing people and making them think things are not as bad as they are.
And things are bad.
Welcome aboard 😉
Cheers cap’n!
Minor nit. You’ve got the currency symbols (and ratios GBP/EUR and EUR/GBP) the wrong way round in your point 1, which is extra embarrassing for “someone who works in foreign exchange”.
It’s £0.8750 and €1.21
Feel free to delete this comment after fixing minor nit.
@Onus Probandy.
That is indeed embarrassing, thank you for pointing it out. Funnily enough I never write the symbols, just the rates, I put them in to be “helpful”. Ah well.
Symbols amended, comment can stand!
Gulp… I’m afraid you’ve still got your ratios the wrong way around.
EUR/GBP must be in Euros, and you’ve given it in pounds.
GBP/EUR must be in GBP, and you’ve given it in euros.
I know it doesn’t matter; and I’m not trying to be objectionable, but on subjects I don’t entirely understand I find little mistakes like this often leave me very confused.
No, sorry, you’re wrong on this one.
EUR/GBP is how many GBP for 1 EUR = 0.8715 at this precise moment. However, GBP/EUR (which is not how the market quotes, but is merely the inverse of EUR/GBP which is easy to calculate) is how many EUR for 1 GBP.
As such, you were right about the symbols, as EUR/GBP is indeed £0.8715 i.e. 0.8715 pounds (or 87.15p) for 1 EUR.
Accordingly, GBP/EUR at €1.15 is 1.15 EUR for 1 GBP.
To use another example, the GBP/USD rate in the Telegraph article is $1.6393. That is, 1.6393 USD for 1 GBP.
I wonder if the / is the confusion here. This is a market convention, and does not represent *divided by*. On reflection, I have amended again for the avoidance of doubt using “vs.” instead of “/”. Let me know if this helps.
Cheers.
That’s okay – I get confused by exchange rates all the time. I always have to think twice.
Takes a while to get used to them, and on reflection the “/” is confusing. Hopefully is clearer now…
It was indeed the use of “/” and I have learned something about exchange rate symbols. Thank you.
I read GBP/EUR as GBPs per EUR.
What an odd choice on the part of the financials who invented the convention.
Yes indeed, I think it’s the smallest symbol and is simply used as a divider. It is funny though, it has never occured to me before today that it could be confusing, I’ll see if any of my more experienced colleagues know where it came from…
Not “tow” the line.
Toe the line.
Regards
Edited. Anyone have any thoughts on content ;)?
Content?!? Oh yes. Good– liked it. Of course we have to have inflation. How the hell do you think the savings of everyone in the country can be harvested to help clear the debt? Tch.
Did anyone else see Niall Ferguson’s lecture on the subject of debt and the various methods governments use to escape it ? He showed pretty conclusively that attempting to inflate it away doesn’t really work, pity no one in government or central banking seems to be taking any notice.
@timdog; I will keep your blog bookmarked – just in case. It’s good to know that you can be found here.