It seems the Asian century has begun making its presence felt in the economies of the West and the US. More high-end financial jobs are opening up in Asia led by China, India and the Gulf at a time when job opportunities in the first world have literally come to a halt if not falling.

The city of London and the Wall Street are losing their charm for the bright and the brilliant as more and more of them are making a beeline for Asia where trillions are accumulating and limitless sovereign funds are waiting for them to play with.

In the past when the crunch time came, the investment banks would withdraw back from emerging markets to headquarters in London and New York but today they seem to be expanding in outstations and cutting back at the base.

This new trend seems to be posing a genuinely serious threat to London. And the latest reports from the Office of National Statistics and the Bank of England (BoE) on inflation, unemployment, interest rates and overall UK economy seem to reinforce the view that the economic pain inflicted by the one-year old credit crunch would take many more years to heal.The slow down in the economy has manifested in rising unemployment which is estimated to have reached the highest in 16 years. The rate of inflation has all but reached a record five per cent pushing the Bank of England on the horns of dilemma as to when and what to do with the rate of inflation which it has kept constant at five per cent now for almost six months.

The BoE hopes that the rate of inflation would return to this year’s target of two per cent in time when prices are forced back as they hit the rock of impending economic recession.

The BoE has so far resisted the temptation to cut interest rate to encourage investment and consumption and any rethink by the Bank’s Monetary Policy Committee (MPC) on this score seems to have been warned off by the International Monetary Fund. The Fund told the British government that it should not try to spend its way out of a slow down.

The pessimistic fund report on the UK economy pointed out that there was no room for slippages in the current fiscal year and recommended a stronger-than-planned fiscal stance for 2009 and beyond.

The IMF praised the UK’s strong policy framework and recommended that the 40 per cent of output ceiling on net public debt should be retained. The IMF expects the 40 per cent rule to be breached, but called for “concrete and frontloaded plans to bring debt back below the ceiling”.The IMF expects the UK economy to grow at 1.4 per cent this year and 1.1 per cent in 2009.

The Treasury, in its response to the report, said: “We welcome the IMF’s recognition of government policies that have underpinned the strong performance of the UK economy over the last decade.”

The IMF accepts that higher taxes or lower spending could worsen an economic slowdown but argues that if the UK’s fiscal framework lost credibility, sterling would be undermined and the BoE would be forced to raise interest rates higher than would otherwise be necessary.

The IMF sees “little scope for monetary easing at present”. The IMF believes that inflation expectations in the UK are rising and fears that they will spill over into higher wages.

The rate of unemployment in the UK according to the latest ONS report has gone up steeply in the recent months. The number of people out of work rose by 60,000 in the three months to June, taking the official unemployment rate to 5.4 per cent. The Office for National Statistics (ONS) said unemployment increased to 1.67 million between April and June.

A slowing economy is said to be taking its toll on the labour market. The ONS also said the number of people claiming jobless benefits in July rose by 20,100 to 864,700.

The slump in the labour market is expected to continue because of slower economic growth and concerns by companies that the downturn might actually be longer and more pronounced than they originally thought.

Average earnings in the three-month period grew at an annual pace of 3.4 down from 3.8 per cent in the previous period and the weakest rise since August 2003.

This is expected to ease fears about soaring inflation, which stood at 4.4 per cent in July, and lessen the likelihood of an interest rate rise to contain price rises.

On Tuesday, the ONS reported that consumer price inflation had reached 4.4 per cent in August, more than twice the government’s target figure, while retail price inflation, often used for setting wages and benefits, was five per cent.

The BoE inflation report said that the UK economy faced a year of stagnant growth, and that there is limited scope for interest rates to move either up or down to counter weak output and high inflation.

According to the central projection of BoE’s forecast the market expects interest rates to remain roughly unchanged over the next year and inflation to peak around five per cent in the next few months and fall slightly below target in the medium term. The bank stressed that the balance of risks to its inflation forecast was “significantly on the upside” – suggesting it wants to leave its options open.

“The next year will be a difficult one, with inflation high and output broadly flat,” Mervyn King, the bank’s governor, told a news conference. “But with monetary policy focused on its task of bringing inflation back to the target, we will come through the adjustment.”

He expected inflation to ease from the start of next year as domestic food and energy prices stabilised and demand weakened, but he said there was a risk of it persisting at higher levels if businesses came to expect higher inflation in the long term. The squeeze on households’ take-home pay resulting from higher food and energy bills will be the biggest constraint on growth, Mr King said. But he warned the economy would also suffer from a further tightening of credit conditions, from the drop in housing market activity and from businesses’ greater reluctance to invest.

The UK economy faces a year of stagnant growth, and there is limited scope for interest rates to move either up or down to counter weak output and high inflation, the BoE said.

Meanwhile, in the wake of the BoE’s latest Inflation Report, Sterling plunged to $1.90 for the first time since late 2006.Capital Economics Limited, a London based research firm said this trend has further to run and projected dollar/GBP1.65 by the end of next year.

To some extent the forecast reflects the view that falling commodity prices and a contracting US trade deficit should provide ongoing generalised support for the dollar. In addition, the shifting rate expectations should also play a role.