Thursday, 13 March 2008

Somebody make it stop

The price of oil is a nightmare come true. Somebody make it stop. It cannot keep on increasing like this. The pain of filling up the petrol tank is just too much to bear. Driving into the local Tesco forecourt is just agony.

The numbers are shocking. Since the beginning of the year, the price of oil has risen from $94 to over $110, which is about a 13 percent increase in barely three months. Since the beginning of 2007, oil is up 120 percent. On February 13, 1999, the price of oil was just $9.77. Compared to that happy day, the price of oil has increased by over 1,000 percent.

An increase in the price of oil transfers resources from oil consuming countries to oil producing ones. Although the UK does produce some oil, it is on balance more of a consumer than a producer. So, the question confronting the UK is how will this resource outflow be distributed. Who is going to take the hit? Who will end up poorer by the end of the year on account of higher oil prices?

With previous oil price shocks, the UK has always answered this question in the same way. Back in 1974 and 1980 - the two last shocks - the UK went into recession and the unemployment rate increased. It was the unemployed who ended up paying for the higher oil price, while those in work largely maintained their standard of living. On average, real wages across the UK did not fall. Firms chose to fire workers rather than try to reduce labour costs.

With this most recent oil shock, which has been going on for a while, the UK has responded differently. Rather than having a recession, households increased their borrowing. Aggregate demand has remained high, and the consequences of higher oil prices has been pushed out into the future.

However, that strategy is now comng undone. Credit is tightening and the recent price hike is likely to have more immediate consequences. So hold on to your seats, the UK economy is about to dive into recession.


Anonymous said...


Anonymous said...

A few typos slipping in today Alice - have you been on the sauce?

Top posts though.

Anonymous said...

This is why the soaring cost of housing is so devasting upon economies. The price of raw materials are soaring but raising interest rates is near on impossible due of the size of the average mortgage. Now the government now own £55 billion of mortgage debt via the nationalisation of the rock it makes the already tricky job of being governor of the BofE that bit more difficult. Oh, throw the national current account deficit into the mix just before the impending recession and its a recipe for a perfect economic storm.

Its going to take a bit more than positive thinking to get us through this one.


Anonymous said...


It'll sort out our congestion problems, lazy school runs, SUV monstrosities, drive-time commuter hell and all other annoyances though.

Oil up => petrol up =>
1) People want enviromently aware efficient cars
2) People don't live so far from work, or they get the bus
3) People might walk places again

As food goes up we'll probably also see the obesity time-bomb reduce.

As bad as it sounds, what is rising oil and food really going to do ? It's going to make it economically less attractive to involve ourselves in the lazy gluttony that has ruined UK culture.

Oh, and if you believe gold is money (I do) then overlay your oil chart with the gold chart and ask yourself the obvious question:

Is oil actually more expensive than it used to be?

Inflation is a monetary phenomenon.


Anonymous said...

There is no 'obesity time bomb' people are living longer and more healthy lives than any time in the whole of human history. You're more likely to die from being underweight than you are from being obese.

As for rising fuel prices making 'it economically less attractive to involve ourselves in the lazy gluttony that has ruined UK culture' this isn't the case. What has ruined the Uk (and US) is the real estate free loading speculating free loaders that all want something for nothing. Those that actually use the oil productively such as U.K business will have to lay off workers in order to stay competitive. In other words its going to harm the productive much more than it is the idle.


Anonymous said...

Sure it'll harm the productive but it'll hurt the idle so much more because the margin they existed in as freeloaders (either directly as benefit scroats or indirectly as public sector loafers) depended on a booming economy drowing the government in tax revenue. That's just ended.

Where's the government going to get the money to pay out these benefits and inflated public sector salaries?

Tax? No chance, total revenue is headed down and increasing tax rates will only accelerate the decline

Borrow? Who's going to lend to them. There's credit crunch on and GILTS are losing their lustre

Print? Possible but it'll only give a short term pop before we head into Zimbabwe territory

The money simply isn't there and no magic wand will wave it into existence. See what's happening to the US municipalities for a look into our future.

It'll be tough as a worker watching jobs go and tax burdens rise. But it'll be even worse to be on a fixed income half-arsed linked to an understated CPI, or in a public sector job where the pensions can't be paid and the jobs are going to be cut.

You're aware that the current younger generations have life expectancy BELOW their grandparents, right? Longevity has peaked too.