The UK getting closer and closer to collapse

Just two days ago, the official CPI figure in the UK came up at 3.2% and both Mervyn King and Gordon Brown where surprised by the numbers. I must admit that it's very surprising that with a currency that's been devalued by about 25% against the Euro and the US Dollar and 50% against the Yen in the past 18 months, plus having M3 figures skyrocketing by about 40% annualized, only the complete idiot and absolute incompetent must be surprised to see prices rise. When you think that the CPI figures are probably way understating what is actually going on in the country, you get somehow a bad feeling about the future of the GBP. From my own experience as a shopper, prices have been rising by much more than just 3%...

March 24 (Bloomberg) -- The U.K. inflation rate unexpectedly rose in February after higher food costs and the weakness of the pound sustained price pressures even as Britain’s recession deepened.

Consumer prices climbed 3.2 percent from a year earlier, the Office for National Statistics said today in London. The median forecast of 28 economists was for 2.6 percent.

Worse, those three idiots (you shall not forget about Alistair Darling!), think that decreasing prices will soon resume and that they must hence inflate even faster and harder.

Bank of England Governor Mervyn King wrote in a letter to the Treasury explaining the increase from the 3 percent limit that a “sharp decline” in the rate is likely to resume.

Chancellor of the Exchequer Alistair Darling replied that he welcomes King’s approach of looking through temporary effects on inflation, which officials say may be volatile because of the currency’s drop.
[...]
“February’s inflation outturn is somewhat higher than expected,” King wrote to Darling. “It is likely that over the next year CPI inflation will move below target, although the profile of inflation could be volatile.”

The Bank of England has to do whatever is necessary to get Britain away from disinflation, policy maker David Blanchflower said yesterday.

So much stupidity is beyond imagination. It can exist only in the real world.

But just when you think you are seeing light at the end of the tunnel, it looks like the light is the train coming fast and that avoiding a complete wreckage is almost impossible. It also shows one more time that trying to micro-manage the economy is bound to failure because of the law of unintended consequences, that I have been talking about in the past:

March 26 (Bloomberg) -- [...] For the first time in almost seven years, the U.K. couldn’t find enough buyers for one of its debt sales when it offered 1.75 billion pounds ($2.55 billion) of bonds yesterday. The yield on 10-year gilts rose after the sale by as much as 20 basis points
[...]
Gilts have “only one buyer and that’s Mervyn King,” said John Anderson, a money manager who oversees about $3 billion in pound-denominated assets at Rensburg Fund Management in London. “You don’t need to look anywhere beyond that. Make your mind up, please, government. Do you want to buy gilts or do you want to sell them? You can’t do both.”

A couple of past posts that might be worth reading again:

• GBP to be devalued by 50%-70% within next 6-12 months
• GBP arbitrage opportunities gone, replaced by very high inflation

(Full disclosure: I have been massively short the GBP for about a month)