One has heard a lot about setting a thief to catch a thief but never about setting inflation to catch inflation. But that is exactly what the UK has decided to do. London wants to fight inflation with inflation. The idea is to let inflation go high enough to dampen demand so much so that a recession is set in dampening price spiral and thereby bringing the rate of inflation well under four per cent.

For this to happen it is likely that the rate of inflation in Britain may hit over six per cent before the year is out. In any case, the Bank of England or its Monetary Policy Committee seem in no mood to use the conventional weapon -- interest rates-- to fight inflation because the central bank is more focused on reviving the banking sector that has gone into hibernation in the aftermath of the credit crunch which has prolonged beyond all expectations.

Meanwhile, the high oil prices which a recent report of the world energy body said could go even beyond $150 are said to have pushed up shipping costs making the cheap imported Chinese goods almost as costly for the British and European consumers as they would have been if made at home. So, the trend to take your manufacturing facilities from the rich countries to overseas in search of cheap labour and economic utilities is said to suffer a serious reversal soon unless of course the oil prices slide back to $60 a barrel.

A more likely outcome of high frieght rates than local manufacturing in rich countries is expected to be be regionalisation - Asian, Latin American and African manufacturers will be forced to look to neighbouring markets for opportunities if the cost of long-haul markets becomes prohibitive. An expansion of regional trade like the Saarc and ECO would be good for the world as it might open opportunities for neighbours of giants, such as China and India to sell their wares.

It is believed that neighbours of India and China could greatly economise on their import bill by getting their made ups, raw materials. semi- manufactures and consumer goods as much as they can from their bigger neighbours rather than from Europe, America, Australia and Japan. In the process globalisation is going to take a big hit, it is believed.

The economics of long-distance supply chains are being looked into its mouth; For small and expensive items like drugs and sophisticated electronics, for example - fuel costs perhaps would not be so decisive, but transporting bulky goods like furniture, footwear, basic machinery, building materials from China in vast quantities to America, Europe and the UK would certainly be more expensive than making them at home.

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The business of air freighting perishable goods would become too expensive. Britain is a big market for East African and Latin American cut flower. Their imports have become prohibitive since increase of 40 per cent in freight rates. In the case of carnations, a commodity product, the cost of air freight from Kenya or Colombia now accounts for half of its value.

Britain gets its clothes, food and appliances from Asia rather very cheap because of inexpensive fuel. This is not likely to be so any more because of freight rate increases as oil becomes dearer. The tariff wall of expensive marine and jet fuel are now likely to favour domestic manufacturers, but it will add a harsher burden to pockets of the consumers, who will find themselves at the mercy of costly local producers.

Britain being a nation that depends heavily on trade is unlikely to profit when trading becomes more expensive because of high freight rates.

Britain has thrived on London’s role as a global trading mecca. It would not be illogical for trade in financial services to follow the regionalisation of trade in goods as more dispersal of financial markets to the Far East, the Middle East and, eventually, to Latin America and Africa are expected to be seen. In such a world, where travel is expensive and financial capital more dispersed, Britain might lose its advantage in the financial field.

As of today, however, Britain is still enjoying a lead role in the world financial markets. Global physical and derivative trading of commodities on exchanges increased more than a third in 2007 to reach a record 1,684 million contracts according to a new edition of International Financial Services London (IFSL) Commodities Trading report. The OTC derivatives market has also seen strong growth in 2007. The notional value outstanding of banks’ OTC commodities’ derivatives contracts grew by 27 per cent to a record $9 trillion, largely due to an increase in OTC traded energy contracts.

According to the report, in the five years up to 2007, the value of global physical exports of commodities increased by 17 per cent while commodity derivative trading on exchanges increased by 213 per cent and the notional value outstanding of commodity OTC derivatives by 540 per cent.

London has benefited from this increase in trading due to its position as the largest global centre for commodities derivatives trading after New York. The major exchanges located there accounted for 17 per cent of global commodities’ exchange trading in 2007:

• Liffe is Europe’s biggest exchange for ‘soft commodities’ with 12.8 million contracts traded in 2007.· London Metal Exchange is the leading global exchange for non-ferrous metals.

• ICE Futures is Europe’s biggest exchange for energy products.

Turnover grew for the tenth consecutive year in 2007 to reach 138.5 million contracts.

The bulk of global OTC trading in precious metals is also conducted in London through the London Bullion Market association.

Prices of many commodities have reached record highs in early 2008. This was partly due to growing demand for raw materials in emerging markets such as China and India, rising interest from investors and limited supply of some commodities. The increase in prices has attracted many investors to the commodities sector including short-term speculators such as hedge funds and more recently longer term institutional investors looking to diversify their portfolios. Funds invested in the commodities sector totalled over $400 billion in the first quarter of 2008, with more than $150 billion invested in commodities indices in 2007.