Inflation is now at a 3 year high at 2.3%. Despite the Bank of England target of 2% it is almost certain to go even higher in the next few months.
Now in the past the reaction of the Bank of England (BoE) would be to respond by increasing interest rates to dampen down the inflationary pressure. But interest rates have not yet gone up.
If this was a temporary rise before it settles down to the target of 2% then the BoE will resist putting up the rate of borrowing. But there are no signs that this is a temporary phenomenon – the lower pound is causing retailers to put up their prices, food prices are up, energy companies are putting up their prices. As the old song goes ” the only way is up.”
No this far from being temporary, inflation is back and here to stay. The only question is how high will it go up. Some economists predict 3% others say it will be higher.
But it’s not like the 1970s. Because of weak trade unions despite higher prices, wages are still stagnant. Combine the two and it gives a deflationary economy. So no pressure on rising interest rates. These factors will bring interest rates down to the BoE target without the bank having to use the usual anti-inflationary medicine.
But all this could change if sterling went further down. This would instantly increase the cost of imports and cause inflation to rise. This would force the Bank to take action to stop the financial markets selling sterling.
In such a scenario rising inflation would squeeze living standards but the Bank would have to then intervene by raising borrowing rates and could tip the economy into a recession.
The country would need this like a hole in the head at a time when there is so much uncertainty because of Brexit. Ironically, those that will suffer most are those very deprived communities that voted for leaving Europe. The weaker pound is a consequence of the move to leave. Another example of ‘be careful of what you wish for.’
UKIP have lost a second AM from their group with Mark Reckless announcing his intention to join the Tory group in the assembly.
The UKIP group in the assembly is now down to 5 members. Having earlier lost Nathan Gill who also retains his membership of UKIP in the European Parliament but sits as an independent in Cardiff Bay.
To misquote Oscar Wilde to loose one member is a misfortune to loose two is downright reckless.
It would appear now the referendum to leave Europe has been won, UKIP are finding it difficult to be a cohesive political force.
Having been a single issue political party for so long they are clearly finding it difficult to find a place for themselves in the post Brexit era.
Despite her warm words of being for the working family the Conservative party under Teresa May has shifted to the right of the political spectrum, a space that UKIP were hoping to make their own.
Now they have nowhere to go UKIP members such as Reckless are jumping ship and going back to the Tory party. Significantly UKIP are only fighting 70 seats throughout Wales in the council elections.
One would have expected that they would have tried to consolidate those areas that voted leave in the referendum and seats they polled well in Assembly elections such as Merthyr Tydfil and Blaenau Gwent UKIP. In these two councils they have not put up council candidates and have put very few in other valley seats.
In the long term to be a successful political party you have to put down roots in local communities. Clearly, they failed to do this when they were riding high in the polls.
Having failed to bed their organization down in local areas they have very few members they can put up to stand for seats on local councils.
What then of Mr Reckless’s political future? He’s unlikely to have a warm welcome back by Conservative Central Office. After all he left the Conservatives to join UKIP in September 2014 causing a by-election in his Rochester and Strood which he won but lost the seat in the May 2015 General Election.
He was parachuted into South Wales by his new party to fight the Assembly elections. He subsequently got elected on the regional list in South East Wales for UKIP joining six others as UKIP made their breakthrough to the Assembly and became players on the Welsh political scene.
However whatever the feelings in Conservative Central Office in London the Tories in Cardiff Bay will be delighted. With the defection of Reckless they overtake Plaid Cymru in numbers and can call themselves the “official” opposition again. And may also win a committee chair from Plaid Cymru.
In announcing his move Mark Reckless said
“I want to be part of a strong and united team of Assembly Members in Cardiff Bay – one which continues to shine a light on the failures of Labour’s Carwyn Jones and his friends in Plaid Cymru and the Liberal Democrats.”
Labour is delighted by the move, a source said, “this shafts Plaid Cymru, UKIP are in disarray and the Tories are seen as the nasty party.”