There’s loads of serious-minded UK Budget news & analysis on FT.com already, so…
Another update by NIESR of its monthly UK GDP projections… another prediction of flatlining growth, now extending into the first two months of 2013.
Breaking: deputy prime minister Nick Clegg has hit soundbite pay dirt.
In Tuesday’s FT he is quoted as saying that the Funding for Lending Scheme, whereby financial institutions get cheap loans from the Bank of England to boost credit to the wider economy, should be “put on steroids”.
(This is getting to be a genre.)
Robert Chote, head of the Office for Budget Responsibility – the UK’s independent fiscal watchdog – writes to David Cameron about this speech… Read more
Getting a favourable leader in the Economist is pretty Establishment, surely.
At the very least, it’s interesting that the red-top weekly has managed to endorse and explain a fairly specific nominal GDP target for the Bank of England. Read more
Some might say it’s labour hoarding; some might say it’s “flexibility”; some might say it’s the gutting of the City. Many would think the UK productivity puzzle goes on, and some would just ponder the strong showing of full-time jobs in the latest figures.
Here’s the view from Nomura’s Philip Rush, with some charts (click to enlarge)… Read more
The verdict is still out as to how much the Bank of England’s latest attempt to boost the economy is actually working. There are indications that Funding for Lending is helping ease credit flows, but we won’t know how attractive the low-cost financing actually is to banks until the FLS usage data for Q3 is released on December 3. It’s hoped that it will get up to £80bn of extra credit into the economy.
The scheme was launched this summer, and on Tuesday the BoE published a full list of participating banks along with their total lending to UK households and ‘private non-financial corporations’ (as of end of June). A total of 17 new institutions have got onboard since the launch, mostly building societies, but the Co-Op, Clydesdale and Tesco were also new joiners. HSBC is not on the list. Read more
Credit Suisse’s answer last week to the (rather odd) idea of the British government “cancelling” (restructuring) the gilts held by its central bank under quantitative easing…
From the bank’s credit analyst William Porter, it’s worth a read:
Any financial problem can be solved at a stroke if double-entry book-keeping can be ignored as a constraint. The problem is, it cannot. So debate in the private-sector financial community about “solutions” to the UK’s financial challenges based on ignoring it worry us. In the UK, Mervyn King has been quick to debunk the fallacies. But if they can exist even for a while in the very simple UK, then the infinitely more complex euro area (which we do not address in detail here) is fertile ground for solutions based on fallacious reasoning…
From Citi’s Michael Saunders and Ann O’Kelly: Read more
Andrew Dilnot CBE, chair of the UK statistics authority, writes to David Cameron…
We noted our growing love for one John Mann MP before and it looks like his proposals are gaining some traction. From earlier in August:
Mann is suggesting that incentivising measures should include a suspension of all town centre car park fees up to Christmas, a reduction of Vat on DIY product, a crash programme of building pensioner bungalows and a re-introduction of green technology incentives such as solar panels. Read more
This the Bank of England’s report into the distributional effects of its asset purchases. Click through the image for the full doc:
The U.K. economy has been flat for nearly two years. This stagnation has left output per capita a staggering 14 percent below its precrisis trend and 6 percent below its pre-crisis level. Weak growth has kept unemployment high at 8.1 percent, with youth unemployment an alarming 22 percent.
The effects of a persistently weak economy and high long-term unemployment can reverberate through a country’s economy long into the future—commonly referred to by economists as hysteresis. Read more
Aire Valley is in what’s called Brontë Country in the UK’s Pennine hills, home to the towns of Bradford and Bingley.
This cheery note is from the Office for National Statistics (our emphasis):
GDP contracted by 0.2 per cent in the first quarter of 2012, the second successive period of negative economic growth. The fall in real GDP was driven primarily by weakness in the construction sector, where output is estimated to have fallen by 3 per cent between the two latestquarters. But the dominant services sector of the economy grew only slowly while industrial production fell slightly. Read more
Posen, of course, is the Bank of England’s perennially frustrated dove and proponent of looser fiscal and monetary policy.
His case is that although the recoveries in both countries have been inadequate, UK growth has lagged and inflation has been higher for three sets of reasons: Read more
Chart via Citigroup, bouncing off the latest UK GDP revisions downward (hat-tip Bond Vigilantes):
Tesco is set to announce that it will create 20,000 jobs in the UK in the next two years, equal to seven per cent of its current British workforce, the WSJ reports. Plans to open new stores and upgrade existing ones in Britain account for the hiring increase. Tesco’s renovation bid comes as its share of the market dipped to its lowest since 2005 last month, and following an unexpected UK profit warning in January, Reuters reports. Tesco will take on more unemployed young people and also expand its apprenticeship programme to provide 10,000 places, says the Guardian. Tesco’s plans to offer more fresh food will however be met by a store expansion strategy by Wm Morrison this week, and a possible shift by J Sainsbury towards fresh produce, the FT says. Read more
Linda Yueh of Bloomberg TV just asked a very sharp question of Bank of England governor Mervyn King at Wednesday’s Inflation Report press conference, at pixel time. If the UK’s money supply is contracting, shouldn’t there be more QE, and are you buying the right assets (gilts) anyway?
Mervyn dodged the last part. (Update — see below) Read more
The Bank of England’s Monetary Policy Committee voted to keep interest rates at their current record lows on Thursday and authorised further gilts purchases totalling £50bn, in line with economists’ expectations, reports the FT. The move brings the size of the total gilts purchasing programme, known as Quantitative Easing, to £325bn and suggests that, despite recent signs that the UK economy is picking up after a trough in the middle of last autumn, the Bank’s policymakers do not feel confident there is enough momentum for demand to build on its own. Read more
In the light of its most recent economic projections, the Committee judged that the weak near-term growth outlook and associated downward pressure from economic slack meant that, without further monetary stimulus, it was more likely than not that inflation would undershoot the 2% target in the medium term. The Committee therefore voted to increase the size of its programme of asset purchases, financed by the issuance of central bank reserves, by £50 billion to a total of £325 billion. The Committee also voted to maintain Bank Rate at 0.5%. The Committee expects the announced programme of asset purchases to take three months to complete. The scale of the programme will be kept under review….
Three years of 0.5 per cent, now. Read more
George Osborne, the chancellor, warned on Tuesday night that enterprise could be stifled and jobs could be put at risk if an “anti-business culture” were allowed to take hold in Britain, reports the FT. Mr Osborne presented himself as a staunch defender of enterprise, vowing he would oppose the unidentified forces that were creating a hostile political climate for business. “We have to stop them,” the chancellor said. Against a background of disquiet in boardrooms and on the Conservative benches, Mr Osborne, speaking to the Federation of Small Businesses, said the government was reforming the banking sector, but he knows the government still has much pain to endure before the annual bank bonus round is over. Read more
This’ll be a controversial argument about the Bank of England’s buying of UK government debt, we know… but it comes from Philip Rush of Nomura:
Aggressive quantitative easing brings [gilt] market capacity constraints into play. A renewed intensification of the sovereign debt crisis could cause this should one of QE’s reverse auctions fail. Tweaking maturity buckets or adding linkers could cure the constraints… Read more
UK military leaders have raised concerns that more than 80 per cent of the UK’s liquefied natural gas imports would be halted if Iran made good its threat to block the Strait of Hormuz, the FT reports, citing people within the Ministry of Defence and the Department of Climate Change. Ministers and senior military figures have been warned that almost half the UK’s gas imports, and 84 per cent of its LNG imports, use the waterway. Lord West, former head of the Royal Navy and security adviser to Gordon Brown when the latter was prime minister, told the FT that, if the strait were blockaded, the sharp fall in the UK’s gas supplies would be the country’s single most critical issue. Furthermore, Iran’s upcoming presidential elections are adding to Tehran’s need to posture, said Christopher Parry, the MoD’s former director-general of development, concepts and doctrine. Read more
Construction of the contentious £32bn high-speed rail line between London and Birmingham should start as soon as possible to help boost the UK’s construction industry and strengthen the country’s ageing infrastructure, a group of leading economists including Lord Skidelsky have written in the FT. The 28 economists urged the government to give the green light to the £17bn first stage of the line, known as HS2, in a letter to the newspaper published on Friday. They point to research findings that the line, which in its second phase would be extended to Manchester and Leeds, could “support the creation of up to 1m British jobs”. The government is expected to face calls for a judicial review from a group of 18 local authorities affected by the route if it gives the project the green light. Read more
The coming year will rival 2009 for economic weakness in the UK, as output is hit by the continuing debt crisis in the eurozone, according to a large majority of economists polled by the FT. In a survey of 83 economists, including 11 former members of the Bank of England’s monetary policy committee, three times more respondents thought the economic outlook would deteriorate than thought it would improve in 2012. Even if there is a double-dip recession in 2012, however, only a small minority are urging George Osborne to abandon his seven-year austerity plan in favour of stimulating the economy with tax cuts or more public spending. Of the 83 respondents, 45 predicted the outlook would deteriorate again this year. Four economists said the London Olympics would boost growth in the third quarter. Read more
KPMG could announce the sale of Blacks Leisure through a pre-pack administration deal as early as Friday, says the Telegraph, adding that unnamed City financiers believe the entire company will be sold to a single buyer in January. Mike Ashley, Go Outdoors, and Edinburgh Woollen Mill were said to be interested in buying the outdoor retailer. Meanwhile the FT says retail sales are finally beginning to pick up after slow pre-Christmas trading. Sales at John Lewis, the department store chain, rose 20.7 per cent year-on-year in the four days to the end of Wednesday. John Lewis’s figures compare with a period affected by snow disruption last year, and the group is widely expected to outperform the high street. Supermarket chains are also seeing strong demand in the final few days before Christmas. However some analysts said a last minute rush would be insufficient for many retailers to offset slower sales to date. Read more
This is how Goldman Sachs sees the UK economy in the next few months:
We now expect an outright recession in the UK, with two consecutive quarters of -0.1%qoq growth in 2011Q4 and 2012Q1 (where previously we expected marginally positive growth in these quarters). The changes, together with lower growth in 2012Q2, have reduced our 2012 annual GDP forecast from +1.3%yoy to +0.7%yoy. Read more