UK coalition government
Our headline is the same question you could have asked of Moody’s back in February… The UK lost its second AAA rating on Friday night after Fitch cut its rating to AA+. The outlook’s stable. S&P is now the only one of the big three giving Britain a top rating. The rationale from Fitch:
International transfer pricing might not win any awards for sexy topic of the year, but it is what’s at the heart of the debate around low corporate tax payments by the likes of Starbucks, Google, and Amazon. To explain why, consider Mr Potato Head…
The British government ran a campaign during the Olympics promoting how GREAT Great Britain is. It wasn’t the most subtle of messages, but a fitting promo for The Bearded One. Most bases were have covered, from heritage to innovation to shopping. The one thing they missed is the economy.
Just when you had had enough of Grexits, Greuros and Drachmageddons, here’s another irritating term to add to the eurozone crisis lexicon: Brixit. Yes, the genius fusion of the words Britain and exit to describe another gloomy scenario. The word was coined by The Economist’s Bagehot column this week (although apparently it is also the name of a Swedish shop that sells Lego) to describe an event that it argues no British political party wants but is nevertheless likely to happen. (The story of the euro crisis, surely?)
A warning to Great Britain from UK-based investment fund Hinde Capital (a hedge fund that specializes in precious metals): We wish to outline the gravity of the situation in which the UK finds itself, and by assessing how we got here we can begin to offer our solutions both for monetary and political reforms. Unfortunately we are deeply concerned that far from being cynics or purveyors of doom, the very harsh reality is that the UK is caught in an intractable spiral of negative outcomes.
Or, taking consols, the War Loan, and all that UK sovereign debt jazz into the 21st century. The latest from the Chancellor of the Exchequer ahead of the UK’s March 21 Budget, according to Wednesday’s FT (and leaving SocGen’s Julian Wiseman prescient):
A study of UK industry commissioned by David Cameron says Britain should appoint a “manufacturing tsar” to champion the sector and help deliver a prolonged economic revival, says the FT. A report compiled by Sir Anthony Bamford, chairman of JCB, the construction machine company, says Britain should implement a nine-point plan to strengthen the role of manufacturing in the economy while cutting the country’s spiralling trade deficit on factory-made goods. A central proposal by Sir Anthony is that the government should enlist a person with business experience who would act as the UK’s “champion” for manufacturing within Whitehall and ensure the necessary proposals are adopted to aid the sector’s growth.
David Cameron, UK prime minister, acknowledged Britain’s loss of faith in free market capitalism, the FT says, in a speech on Thursday that capped weeks of political agonising about how to control soaring executive pay and multi-million pound bank bonuses. Britons have so far been willing to accept the need for pay restraint and tax rises to cut the country’s deficit – one of the biggest in any major economy – but public anger has been rising at a sense that the rich are not sharing the pain. Mr Cameron insisted the Conservatives were “the party that understands how to make capitalism work” and that he wanted to address market failures, widen public ownership of companies and to increase social responsibility. He defended the right of successful entrepreneurs to win high rewards but said: “That is a world away from what we’ve seen in recent years, where the bonus culture – particularly in the City of London – has got out of control. The link between risk, hard work, success and reward has been broken.”
The European Union has fallen short in its campaign to supply the International Monetary Fund with an additional €200bn to battle the debt crisis after the UK rebuffed pleas to join the effort. The 17 eurozone governments were hoping that the UK would contribute as much as €30bn, supplementing their own expected €150bn pledge and helping to persuade other governments to reach into their pockets, the FT reports. George Osborne, the British finance minister, reiterated the UK government’s stance that the IMF’s mission was to protect “countries – not currencies” and that Britain believed the 17 eurozone members should take more decisive action to tackle the crisis themselves. Efforts to shore up support from outsiders has thus far met with limited support. Russia last week said it would be prepared to offer at least $10bn – but only after it saw further details of the EU’s plans to confront the crisis. The US, which would have to win approval from Congress, has declined. However, Denmark has said it could give €5.4bn. Sweden, Poland and the Czech Republic are also expected to contribute.
Goldman Sachs, JPMorgan Chase and other leading international banks may be forced to reveal the pay of their top London-based executives for the first time, as the UK government seeks to tackle what it calls “unacceptable” levels of bonuses in the City, says the FT. Draft proposals published on Tuesday by the UK Treasury would require large UK banks and some banks based in the US, Japan and Switzerland to disclose the pay of the eight highest-paid executives below board level across their UK operations. The Treasury thinks the proposal would capture a total of 15 institutions. Bankers and star traders without managerial responsibility, several of whom earn in excess of £10m per year, would be exempt from the new rules. The move is likely to lead to a storm of protest from large international banks with major operations in the UK, says The Telegraph.
UK prime minister David Cameron will meet German chancellor Angela Merkel in Berlin on Friday to try to reach a compromise on two contentious policy moves: the introduction of a Tobin tax across the European Union and the further strengthening of the economic union within the eurozone. The tax, which is a levy on financial transactions, is a FrancoGerman proposal, but it will hit the UK particularly hard because of its large financial services sector. The treaty change, that chancellor Merkel is seeking in order to enshrine tougher fiscal discipline among the 17-member eurozone, would require approval from the bigger group of 27 EU member states. The FT reports that such a move is likely to be seen in many European capitals as further British obstructionism. Mr Cameron faces considerable pressure from his own party to use any treaty renegotiations to wrestle back more power over economic and social policy from Brussels.
German frustration over Britain’s approach to the eurozone crisis erupted on Tuesday after a close ally of Angela Merkel accused the UK of selfishness just days before a meeting between the two countries’ leaders in Berlin, reports the FT. In a speech to members of the German chancellor’s CDU party, Volker Kauder, its parliamentary leader, criticised Britain for opposing a European tax on financial transactions. To applause, he said it was not acceptable that the UK was “only defending its own interests” rather than that of the wider EU. Prime Minister David Cameron is due to meet Merkel later this week so we wait to see if this sours the riesling.
Weekend headlines from the FT and other UK media:* From The FT,- Artemis’ Tim Steer is warning of a “rubbish” time for the UK economy if political leaders fail to agree on a binding solution to Europe’s debt crisis- Insurance that is hard to understand, expensive and potentially useless for the customers buying it – these are criticisms of the policies bundled into so-called “packaged” bank accounts- The Pension Protection Fund will be saddled with one of its biggest liabilities in its seven year history, as the scheme at Polestar, the printing company, seeks to wind itself up- Enigmatic Investments, which is making a £9.5 million cash offer for Clarity Commerce Solutions, said that a Financial Times column on the bid made misleading and inaccurate assumptions and calculations- Premier Foods has suffered a further blow after Moody’s, the credit rating agency, downgraded the ailing UK food producer that is negotiating with banks to reset terms- Lufthansa has signalled for the first time that it is willing to break up BMI British Midland, as the German airline seeks to maximise the proceeds from selling its lossmaking UK subsidiary
Saudi Arabia is making an aggressive push to increase trade with the UK, with ambitions to boost deals in the oil-rich country’s financial sector, reports the FT. Ibrahim al-Assaf, the finance minister, said on Thursday that there was “enormous potential” for British businesses to invest in the kingdom, which is the UK’s largest trading partner in the Middle East. Speaking at the Saudi Finance Forum in London, Mr al-Assaf highlighted more than $400bn of infrastructure opportunities in the kingdom and said the government would publish a list of more than 40 projects later this year.
First the caveat. The following is written by the chief economist of a big Italian bank. So you can be forgiven for thinking “he would say that, wouldn’t he.” But Unicredit’s Erik F Nielsen is surely onto something when asks why Italian funding costs are sitting above 5 per cent while investors demand just above 1.6 per cent to lend to the UK government.
Does this look like grounds for a negative or a stable outlook on that affirmation, do you think? (Via S&P’s statement — released just as Chancellor George Osborne took to the stage at the Conservative party conference): Although the economy has exited recession, recovery has been lackluster, with output essentially stagnating since the fourth quarter of 2010. In our view, the U.K. government’s efforts over the next few years to engineer a steep correction in the fiscal accounts will likely weigh on the economy. This is especially pertinent in the short term as households delever and banks tighten lending terms. Private consumption will be dampened by hikes in indirect taxes, a re-indexation of welfare benefits, a weak housing market, and sluggish nominal wage growth. These factors, in turn, will likely make corporations reluctant to invest in increasing capacity.
Britain is bracing for defeat in Brussels on a critical piece of financial regulation, which would force it to cede control over the shape of key markets in the City of London, home to more than three-quarters of Europe’s derivatives trading, the FT reports. George Osborne, UK chancellor, is insisting that European Union finance ministers next week continue to debate new requirements for clearing derivatives, in spite of his counterparts making clear that London is alone in opposing the package. Mr Osborne is expected to break from next week’s Conservative party conference in Manchester and travel to Luxembourg to seek a reprieve over the derivatives regulation, as well as press his European colleagues for action on the eurozone crisis and fight a proposed financial transaction tax that would hit trades that are overwhelmingly routed through the City of London.
Britain’s biggest banks are set to escape any major restructuring until after the planned 2015 general election, amid a political consensus that they should focus on business lending to sustain the faltering economy … That’s the latest news on the upcoming report from the Independent Commission on Banking (ICB), due to shape the future of Britain’s banks, and as published by the FT late on Wednesday.
This should make Davos a bit less tense; a win-win for the British and Swiss governments on Wednesday: Aug 24 (Reuters) – Switzerland and Britain struck a deal on Wednesday to tax money kept by British residents in secret Swiss bank accounts, which will gift a windfall to the cash-strapped British government and helps the Alpine country’s banks come clean on untaxed accounts.
Investors snap up real estateThose fleeing the volatile bond markets are pushing up the price of real estate so high that yields are barely keeping up with inflation LDI out of favour with firmsThe pool of UK investment houses offering liability-driven investment strategies has fallen sharply in the last two years
Antitrust officials in Brussels are expected in the next few days to open a probe into the UK government’s plans to privatise Royal Mail, the FT says. The scrutiny will determine whether the UK proposals meet European Union state aid guidelines. EU competition officials are unlikely to complete their probe until the start of 2012 at the earliest.The move comes amid growing doubts about whether the coalition will be able to sell even part of the state-owned postal operator before 2013 because of Royal Mail’s deteriorating finances.
It’s safe to say we didn’t take this entirely seriously when it landed in the FT Alphaville inbox a couple of weeks ago. GBP: The Closure of The News Of The World could be the start of a deeper and more lengthy commentary on Politics and the Press in the UK. The Cameron Government is well entrenched with the Media, and we would be surprised if we do not hear of Higher Level Goverment employees resigning in the next few weeks as the Government ‘Inquiry’ digs deeper. Though we are negative the USD, for the time being we are not negative the USD against the GBP. It is sitting on support at 1.5940, with the 50 DMA about to Cross the 100 DMA. The Possibility of Government Corruption and the eventual Clarity is never positive for a Currency – Douglas Borthwick, MD of Faros Trading.
At long last, Scotland is to meet the capital markets. Scotland is one of a rare breed of nations: it has its own legal system but lacks sovereignty. It’s also a fiscal outlier. Unlike sub-sovereign entities in the US, Italy and Australia (to name a few), it has little flexibility over taxation and is unable to issue bonds.
Weekend headlines from the FT and other UK media:* From The FT,- Nokia investors burn their fingers- Private investments show Sir Terry Leahy’s life after Tesco- Fracking poses threat to exploitation of shale gas- Verizon solution key to Colao’s reputation- Celebrated gastropub falls victim to rebranding- Anger over Vodafone Egypt link to revolt- Hyundai’s name in lights at Piccadilly- Southern Cross chiefs netted £35 million
It must be bash-the-UK week. Following Tim Morgan’s warning and a forecast of a 10 per cent house price fall, Morgan Stanley’s Cath Sleeman and Melanie Baker have chimed in, with a note pouring doubt on the UK’s debt dynamics.