On Thursday 9th November the Bank of England Monetary Policy Committee raised interest rates to 5%. The increase was widely signalled. The increase has been brought about by fears regarding the level of domestic inflation, now in the region of 3%.
Inflation is very much a mixed bag. Factory gate prices are steady, energy costs are falling from their winter 2006 highs and oil is much lower following the reduced tension in the Middle East.
However, much of the UK domestic index is dominated by public sector items. Council Tax, which has almost doubled since 1997, and the introduction of higher levels of University Tuition Fees are driving up average household bills.
One area where costs are not only under control but falling is the electrical goods sector. This is impacting on everything from ipods, to flat screen TVs, to mobile phones. Technology is benefitting from the experience curve economies enunciated in Moore's Law, whereby the costs fall by 50% every 18 months. Apart from the manufacturing aspects there are also the benefits of a more competitive retail market. This is principally led by a move away from the high street to online retail. Online specialist retailers such as 121 Electricals can offer a leading model of flat screen TV at prices sometimes 10-20% below their high street equivalents. Prior to the rise of the Internet, the high street had become almost a duopoly of Dixons and Comet. Now online competition is providing both choice and lower prices.
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