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Why UK inflation is so high compared to EU and US and what to do about it

UK inflation has been stubbornly high and interest rate hikes have not yet brought it in line with other advanced economies.

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Price rises are slowing but inflation remains persistent. Ink Drop/Shutterstock

Britain has a bigger inflation problem than either the US or the eurozone, according to Bank of England policymaker Catherine Mann.

The latest official UK inflation figures show UK price rises have slowed from double digits to 8.7% for the 12 months to April 2023. But this is still above the 8.2% rate forecast by the Bank of England earlier this year.

The UK rate is also nearly double the equivalent US rate and significantly higher than the eurozone’s 7% rate of inflation for April, which slowed to 6.1% for May.

All three regions experienced the economic shock of the COVID-19 pandemic. EU countries and the UK struggled with dramatically rising energy prices due to Russia’s war in Ukraine. But two UK-specific issues are exacerbating the country’s inflation woes: the adverse economic shock of Brexit, and the UK’s reliance on its financial services sector.

As a result, interest rate rises by the Bank of England will not be enough to reduce inflation. The UK government should also play a role by rebalancing the post-Brexit economy away from financial services towards other traditional industries such as manufacturing.

Interest rates are a blunt instrument for fighting inflation, but they continue to be central banks’ main tool. They affect the economy in several ways. The most obvious is in reducing demand for goods and services by increasing the cost of different forms of debt (such as mortgages).

Read more: Why you should care about bumper bank profits

But interest rates also affect whether businesses can meet their debt repayments and reduce the value of the collateral they provide to banks to secure their loans. This weighs on banks’ balance sheets and so interest rate increases adversely affect the financial sector because it there is a greater risk that these borrowers won’t be able to repay their loans. This is why an oversized financial sector creates headaches for the Bank of England when it tries to tackle inflation.

The UK’s industrial past

In the 1950s, the UK had a balanced economy more evenly distributed between manufacturing and the service sector. Manufacturing (including gas, electricity and water utilities) contributed over 40% of total UK economic output in the 1950s while the service sector accounted for 50%. The UK was responsible for a quarter of world trade in manufacturing.

The government of the day prioritised production for export, making the UK a leading shipbuilder, and a European hub for producing cars, coal, steel and textiles to sell to other countries. Science-based industries, such as electronics, computers and engineering were also taking off in the UK, and the country benefited from this third technology revolution.

But advances in science-based industries did not happen soon enough to balance out a collapse in employment in manufacturing in the UK from the 1960s onwards. By 2011 around 80% of British workers were in service industries and only 10% in manufacturing. Various factors explain this decline in manufacturing jobs, including routine jobs being replaced by robots and computerised systems, rising imports from China and other emerging countries, and government policy.

In the 1970s, the government championed economic policies geared towards a housing boom and the financial hub of the City of London. The British public were told their future lay in working with their brains and not their hands. De-industrialisation policies were instigated by UK prime minister Margaret Thatcher and continued under Tony Blair and David Cameron.

These policies were presented as economic modernisation that would improve workers wages and society as a whole. Even the Labour government, traditionally associated with the working class, was convinced the future lay in the knowledge economy and embarked on making Britain a global service provider.

London's financial district skyline behind Southwark Bridge over the River Thames
The City of London. Richard M Lee/Shutterstock

The rise of the City of London, and the finance, insurance, and real estate industries, under both Conservative and Labour governments has changed the economic trajectory of Britain. For example, the City has sucked the best-educated people out of other regions and careers and into high-salaried London-based jobs. People who might have become scientists or engineers became bankers or hedge fund managers instead.

So, even though the City generates £85 billion per year and employs over 580,000 people, it is not a goose that lays Britain’s golden eggs but rather a cuckoo in the nest. It has crowded out other sectors that traditionally allowed the whole country to prosper.

And the UK financial sector is now causing another problem: its dominance has made it more difficult for the Bank of England to control inflation because of the concerns about how higher interest rates will weigh on bank balance sheets.

Read more: Bank of England interest rate rise: why this could be the last increase for a while

Tackling ‘stubborn’ inflation

This is why monetary policy alone will not be able to tame UK inflation. The bank has spoken about the difficulties it has faced in anticipating the recent rise and persistence of inflation. But advancements in statistical techniques and computation power have improved the ability to forecast inflation. On the other hand, unexpected government policies and the structure of the UK economy may have presented more of a challenge.

The bank’s models had little chance to account for the political turmoil and strategy changes resulting from Brexit. For example, trade has become significantly more difficult between the UK and EU following Brexit, reducing supply and pushing up prices. There are also more people from the EU leaving than arriving in the UK, putting pressure on wages in particular sectors and adding to the inflation problem.

Brexit, coupled with the oversized UK financial sector, makes the Bank of England’s job of controlling inflation so much harder. The government needs to rebalance the UK economy, with science-based industries playing an important role. This would ensure the Bank of England could adjust interest rates to tackle inflation, without having to worry about how it affects the over-sized financial services sector.

The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.

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Zelenskyy, Trudeau Honor Actual 3rd Reich Nazi With Standing Ovation

Zelenskyy, Trudeau Honor Actual 3rd Reich Nazi With Standing Ovation

Canadian Prime Minister Justin Trudeau and Ukrainian President Volodomyr…

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18 mins ago

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September 24, 2023

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Zelenskyy, Trudeau Honor Actual 3rd Reich Nazi With Standing Ovation

Canadian Prime Minister Justin Trudeau and Ukrainian President Volodomyr Zelenskyy - who commands a battalion of neo-Nazis - honored an actual WWII Nazi with a standing ovation on Friday.

Yaroslav Hunka, 98, fought in a Third Reich military formation accused of war crimes.

On Friday, he was honored during a session of Canadian parliament in which Zelenskyy addressed the lawmakers to thank them for their support since Russia invaded Ukraine, saying that Canada has always been on "the bright side of history."

Hunka stood for standing ovation and saluted, according to Canadian television.

According to the Associated Press, Hunka "fought with the First Ukrainian Division in World War II before later immigrating to Canada," another name for the 14th Waffen Grenadier Division of the SS, the Nazi party's military wing, also known as the SS Galichina.

Related:

Formed in 1943, SS Galichina was comprised of Ukrainians from the Galicia region in the western part of the country. It was armed and trained by Hitler's Nazis and commanded by German officers. The next year, the division received a visit from SS head Heinrich Himmler, who had high praise for the unit's effectiveness at slaughtering Poles.

The SS Galichina subunits were responsible for the Huta Pieniacka massacre, in which they burned 500 to 1,000 Polish villagers alive.

One of several photos on a blog by an SS Galichina veterans’ group that shows Yaroslav Hunka, the Ukrainian immigrant honored by the Canadian Parliament during a visit by Ukrainian President Volodymyr Zelenskyy. Hunka is in the front row, middle.

In fact, during the Nuremberg Trials, the Waffen-SS was declared to be a criminal organization responsible for mass atrocities.

Following the war, thousands of SS Galichina veterans were allowed to leave Germany and resettle in the West - with around 2,000 moving to Canada. By that time, they were known as the First Ukrainian Division.

A blog by an association of its veterans, called “Combatant News” in Ukrainian, includes an autobiographical entry by a Yaroslav Hunka that says he volunteered to join the division in 1943 and several photographs of him during the war. The captions say the pictures show Hunka during SS artillery training in Munich in December 1943 and in Neuhammer (now Świętoszów), Poland, the site of Himmler’s visit. 

In posts to the blog dated 2011 and 2010, Hunka describes 1941 to 1943 as the happiest years of his life and compares the veterans of his unit, who were scattered across the world, to Jews. -Forward

So, the same leftists who called Trump supporters Nazis for years are now honoring an actual Nazi - while Germany has notably locked up several concentration camp guards in their 90s for their involvement in Nazi activities.

University of Ottawa Political Scientist Ivan Katchanovski lays it out...

Meanwhile, here's Ukraine's Azov Battalion of neo-Nazis that everyone with a Ukraine flag in their bio is supporting...

Odd, they don't look like Trump supporters.

Maybe these Nazis can shed some light? Careful, "X" thinks this is sensitive material (that might redpill people?).

Meanwhile...

Tyler Durden Sun, 09/24/2023 - 14:25

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Kerry Acknowledges Need For Nuclear Power As Climate Diplomacy Dominates New York City

Kerry Acknowledges Need For Nuclear Power As Climate Diplomacy Dominates New York City

Authored by Nathan Worcester via The Epoch Times,

While…

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18 mins ago

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September 24, 2023

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Kerry Acknowledges Need For Nuclear Power As Climate Diplomacy Dominates New York City

Authored by Nathan Worcester via The Epoch Times,

While addressing an Atlantic Council meeting on nuclear energy, U.S. Climate Envoy John Kerry made it clear he doesn't think wind and solar alone will be sufficient to meet global energy needs while achieving policy plans to rapidly scale back the use of hydrocarbons in the name of addressing climate change risks as outlined by the United Nations.

"You will have to have some component of nuclear—yet to be determined how big or where it'll go. That's going to be a market-based reaction," said Mr. Kerry, who served as a Democratic senator from Massachusetts before serving as Secretary of State under former President Barack Obama.

The 2004 Democratic candidate for president said that "most scientists will tell you" the goal of Net Zero 2050 cannot be achieved "unless we have a pot, a mixture of energy approaches."

"Clearly, we're going to need nuclear to be a part of that," he said on Monday.

Mr. Kerry's pro-nuclear remarks come as climate-related diplomacy and other climate-themed events overtake New York City.

Over the weekend, protesters demonstrated against fossil fuels in the streets of New York City, with Rep. Alexandria Ocasio Cortez (D-N.Y.) among the participants.

Mr. Kerry voiced support for those demonstrators in his speech to the Atlantic Council.

In addition, the U.N. will hold its inaugural Climate Ambition Summit on Sept. 20.

A U.N. statement on the event states it "will showcase leaders who are 'first movers and doers' from government, business, finance, local authorities, and civil society who have credible actions, policies and plans to keep the 1.5°C degree goal of the Paris Agreement alive and deliver climate justice to those on the front lines of the climate crisis."

The Climate Ambition Summit comes ahead of the next annual United Nations Climate Change Conference, which will begin in late November. It's taking place in Dubai, United Arab Emirates.

Even as he praised climate protesters, Mr. Kerry noted that a previous generation of environmental activists had fought hard against nuclear power, now seen as a pragmatic solution by many climate hawks.

"In my state of Massachusetts, where there was a huge fight over Seabrook Nuclear Plant in New Hampshire, we now happily get about 20 percent of all our energy from Seabrook, and nobody's complaining—maybe about the prices a little bit, because that's normal in today's world," he said.

A view of the Seabrook Nuclear Power Plant in Seabrook, N.H., on March 21, 2011. (Emmanuel Dunand/AFP via Getty Images)

"The United States is now therefore committed, based on experience and based on reality, to trying to accelerate the deployment of nuclear energy, as part of the Biden program," he added.

The diplomat, who came under fire from Republicans earlier this summer for his unwillingness to share details of his staff at a Congressional hearing, commented positively on Bill Gates' TerraPower, which plans to build the next-generation Natrium nuclear reactor in Wyoming.

He also drew attention to his recent trip to Romania, where he visited a control room simulator for a small modular reactor developed by the American firm NuScale.

Mr. Kerry took issue with the continued construction of unabated coal-fired power plants and with the existence of subsidies for fossil fuels.

An International Monetary Fund (IMF) study identified $1.3 trillion in "explicit" subsidies for fossil fuels in 2022, a stark increase from $500 billion in 2020. Such subsidies are ascribed to fossil fuel prices when they are lower than they would otherwise be if producers fully bore supply costs. The IMF authors attributed a substantial proportion of the increase to "temporary price support measures," in line with surging fossil fuel prices during that period.

Whitehouse Touts ADVANCE Act

Mr. Kerry wasn't the only high-level Democratic politician who addressed the Atlanticist forum on Monday.

In pre-recorded remarks, Sen. Sheldon Whitehouse (D-R.I.) touted the bipartisan, nuclear power-related ADVANCE Act, which passed the Senate as part of the National Defense Authorization Act (NDAA) in July. The bill has not moved ahead in the House.

"Our legislation would strengthen the Nuclear Regulatory Commission's ability to safely and efficiently review the expected influx of applications and prepare them to license HALEU [high-assay low-enriched uranium] fuels," the lawmaker said.

Russia currently dominates the production of HALEU fuels, which are key for most next-generation nuclear reactors. Uncertainty about Russian supplies of HALEU has been a worry for TerraPower and a central motivation for the Nuclear Fuel Security Act, another successful NDAA amendment.

"We spend nearly $1 billion each year on Russian uranium. Russia uses these revenues to fund its invasion of Ukraine," Sen. John Barrasso (R-Wyo.) said in the Senate as the measure was under consideration.

Sen. John Barrasso (R-Wyo.) in Washington on Dec. 1, 2020. (Bill O'Leary-Pool/Getty Images)

'Decarbonize Beyond Electricity'

Other speakers at the event expanded on how nuclear energy could be used to cut carbon emissions.

"We need to decarbonize beyond electricity," said John Wagner, director of the Idaho National Laboratory. He cited industrial heating and hydrogen production as examples of such applications for nuclear energy.

Sama Bilbao y León, director general of the World Nuclear Association, concurred.

"Yes, we need to electrify as much as we can of our economy, but it is not going to be possible to electrify everything," she said.

Ben Pickett of Nucor Corporation, which operates mills that recycle scrap steel using electric arc furnaces, explained that his company's operations require "billions and billions of kilowatt hours per year."

Earlier this year, Nucor signed a memorandum of understanding with NuScale Power. The latter could potentially develop small modular reactors for use in conjunction with Nucor's steel production facilities.

"We've got customers now that are demanding much cleaner steels," Mr. Pickett said.

He conceded that the idea of running steel production on advanced nuclear has met with a "mixed" reaction in his industry.

Tyler Durden Sun, 09/24/2023 - 15:00

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Zelenskyy Asks Spirit Cooker Marina Abramovic To Be Ambassador For Ukraine, Help ‘Rebuild Schools’

Zelenskyy Asks Spirit Cooker Marina Abramovic To Be Ambassador For Ukraine, Help ‘Rebuild Schools’

Authored by Chris Menahan via Information…

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18 mins ago

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September 24, 2023

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Zelenskyy Asks Spirit Cooker Marina Abramovic To Be Ambassador For Ukraine, Help 'Rebuild Schools'

Authored by Chris Menahan via Information Liberation (emphasis ours),

Ukrainian president Volodymyr Zelensky is recruiting spirit cooker Marina Abramovic to serve as an ambassador for Ukraine and help "rebuild schools."

From The Telegraph, "Zelensky asks Marina Abramovic to be ambassador for Ukraine":

Volodymyr Zelensky has asked Marina Abramovic, the performance artist, to be an ambassador for Ukraine.

‌Ms Abramovic, a fierce critic of Vladimir Putin's illegal invasion, said the Ukrainian president had asked for her help in rebuilding schools.

[...] ‌"I have been invited by Zelensky to be an ambassador of Ukraine, to help the children affected by rebuilding schools and such."

‌She added: "I have also been invited to be a board member of the Babyn Yar organisation to continue to protect the memorial."

‌The Holocaust memorial centre to Jews murdered by Nazis in Ukraine was damaged by Russian missile attacks in March last year.

The "bombing" of the Babyn Yar memorial was confirmed to be a lie last year.

‌Ms Abramovic installed her work Crystal Wall of Crying at the memorial centre in Kyiv four months before Russia invaded Ukraine in February 2022.

‌The wall, 40 metres long and three metres high, is made of coal and has large quartz crystals sticking out of it. Visitors can touch the installation, which mirrors the western wall in Jerusalem.

Zelensky said last year his goal is to turn Ukraine into a "Greater Israel."

In Dec 2022, Zelensky made a deal with BlackRock's Larry Fink to help "rebuild" Ukraine after the war and just last week the Biden regime announced Penny Pritzker would become their Special Representative for "rebuilding" Ukraine.

Meanwhile, Abramovic's pals, the Clintons, are also salivating over helping to 'rebuild' Ukraine.

Tyler Durden Sun, 09/24/2023 - 16:10

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