In order to keep the house price boom running and thus maintain a feelgood factor allowing Labour to win the 2005 General Election, Gordon Brown changed the MPC inflation target from RPI to CPI.
CPI excludes housing costs. You know, that little bill each month called the mortgage. So whereas portable sat navs and DVD players were falling in price houses could boom and the official inflation target would be low and it would be met even though real Interest Rates were too low. The house price bubble was stoked quite deliberately by the Chancellor.
If you want a full breakdown of the official CPI basket it can be found in detail in the link below, note the basket is constantly being changed, brie cheese removed - probiotic drink added etc etc.
http://www.statistics.gov.uk/elmr/04..._Wingfield.pdf
A&C I know we don't have 3 million unemployed. Would this because we have 2 million on Disability Allowance and 1 million Unemployed? There may not be so much of a spike in the official unemployment figures this time around. If you are one of the 2,000 Northern Rock staff about to lose their jobs would you:
a) Sit around for 12 weeks doing nothing until you are allowed to sign on. Then do so to claim your £44 a week for which you will be required to attend any job interview they arrange for you even if it is as night shift meat packer?
b) Get your backside down to McDonalds/Supermarket and start earning £44 a day which retains some dignity and allows you to keep pretty much all of it through the tax credit system plus other allowances now you are a low paid worker. Your CV will show continuous employment and you've never shirked work in your life and don't want to start now.
It'll be b) nearly every time.
Despite employment being strong for now, don't expect that to be the case by the end of the year.
If you look at the raw unemployment figures during the 1990s recession, the number of unemployed people was actually falling right up until May 1990, a good year or so after house prices started to fall. It then rose sharply from about two million to reach a peak of just above three million in January 1993, before starting to fall again.
WWW
House prices are opinion, the debt it real.