Fears for recovery grow as lending slips again

Independent
"Households are saving more and trying to pay off debt at the fastest pace in years, raising concerns that the Bank of England's policy of quantitative easing – directly injecting some £175bn into the economy – is not yet having as dramatic an impact on spending and credit growth as some might have hoped. .....Colin Ellis, economist at Daiwa Securities, commented: "We think the case has been made for the monetary policy committee to increase its QE programme – although probably not before November. Whether the Monetary Policy Committee agrees remains to be seen. If anything, the recent signals from the bank, such as Governor Mervyn King's remarks at the Treasury Committee, suggest that the Bank is rather more optimistic than us about the impact of QE."That could mean it ends up doing too little (or moving too late), further lengthening the recovery and costing more jobs. The MPC already made several errors coming into the recession – and it needs to be careful now not to make further mistakes as the economy is showing signs of life."

UK recovery 'at risk' from £180bn shortfall

The Times
"In its bi-annual Global Financial Stability Report, the IMF concluded that the damage done to banks by the financial crisis was not as great as it had first feared, but also singled out the British economy as being most at risk of restricted funding.The report said: “In terms of regional vulnerability, the United Kingdom appears most susceptible to credit constraints under our stylized scenario, given its significant reliance on the banking channel and the projected sharp decline in domestic bank balance sheets, as well as substantial public financing needs."

Hello Exeter! Let's hear it for QE!

Telegraph
"In a drive to bring dry economic theory to the masses, MPC committee members have been stepping up their public appearances on regional visits with an estimated 50 scheduled this year. .....But the most dedicated promoter of Quantitative Easing (QE) has been Charlie Bean, the deputy governor. In July, he embarked on a week-long UK tour to talk about the policy in Leeds, Newcastle, Bristol, Edinburgh, and 10 other UK towns and cities."

IMF: UK faces credit rationing or higher interest rates unless Bank prints more money

Guardian
"Britain will face credit rationing or higher interest rates unless the Bank of England continues its emergency money creation programme to support growth, the International Monetary Fund warned today.Highlighting the risk of a £180bn funding gap in 2010, the IMF said there was a "significant tension" between the supply of finance from a weakened banking sector and rising demands for funds, primarily caused by the soaring government deficit."

Whats the point of Quantitative Easing ?

John Redwood
"Apparently the Bank and government do not have enough economists of their own – being down to their last thousand or so. Today to make up for the shortage they are inviting in more for a meeting to give them a hand with QE.

....Summary:
QE has been great for a government wishing to hog all the available cash in a pre election year without driving up its own borrowing rate too much. When we stop QE we will find out the true cost of government borrowing. It has done nothing to ease credit for the cash starved private sector. Banks offer very different deposit and loan rates for the private sector, divorced from the artificial money and government bond market rates. QE has helped push up share and bond prices which helps confidence in assets amongst investors.
QE is helping drive down the pound, which might in due course assist in correcting the balance of payments deficit. The absence of action to tackle the government deficit, coupled with the amount of money being created is bad for overall confidence and bad for the value of the currency."

Spain tips into depression

Telegraph
"Spain is sliding into a full-blown economic depression with unemployment approaching levels not seen since the Second Republic of the 1930s and little chance of recovery until well into the next decade.....The root cause of Spain's trouble is that it joined monetary union before its economy was ready. EMU halved Spanish interest rates almost overnight. Real rates were minus 2pc for much of this decade. Combined private and corporate debt reached 230pc of GDP, funded by French and German savings."

Bank of England has no plans to lower rate on reserves

Telegraph
"At a rare briefing at the Bank, Charles Bean, deputy governor, Spencer Dale, chief economist, and Paul Fisher, executive director for markets, clarified the Bank's position after heightened expectation that it was about to follow Sweden's lead by effectively imposing a charge on a proportion of cash that UK banks keep in its vaults."

Mervyn King's Swedish visit rattles pound over policy fears

Telegraph
"The pound dropped further on Monday as it emerged that Mervyn King had just visited Sweden, where the central bank has imposed a radical negative interest rate policy on its banking system."

What has Gordon Brown got to show for 12 years in power?

Daily Mail
"NOW: This year Britain will borrow £225billion, and Labour plans to increase the national debt to £1.4trillion by 2013. It has yet to set out proposals for cutting spending."

Gordon Brown is finished. And the Labour Party might be too

The Times
"I always enjoy a good funeral,” a Labour MP said as he wandered along the seafront in Brighton. If the polls are to be believed, Gordon Brown is dead and the Government is on the verge of being buried — but is the Labour Party itself also heading for the grave?
......In this country Labour is wobbling as it becomes increasingly financially dependent on the trade unions and its support base shrinks to a core vote. After more than a decade in power, the coalition of working and middle-class voters that swept it to victory in 1997 is fracturing."

What’s the point of the Labour party?

FT
"Britain must close an abyssal 12 per cent fiscal deficit. So the next time that they visit the polling booth, UK electors will be asked to make a choice about which functions the state ought to stop performing as the government struggles to balance the books. This is an epic challenge to which Britain’s trivia-obsessed political class has yet to rise."

Another day,another Gordon fightback

John Redwood
"“It’s the economy, stupid.” After twelve years in power the UK is lurching towards bankruptcy. After twelve years to abolish boom and bust we are at the bottom of the biggest bust since the 1930s. After twelve years to “invest” in the public services huge sums of money are being wasted on anything but better schools and hospitals. We have been sold out in the EU, demeaned in our relationship with the USA, and made to fight Middle Eastern wars without the proper military commitment and without credible war aims. More people are out of work and on low benefit based incomes. Yet many in Labour seem to think hiring a few more spin doctors and claiming the Tories want to wreck the place will see them through."

The weak pound offers a quick fix but no long-term solution

Independent
"Devaluation is a dirty word. It stinks of failure. Every so often, the British economy succumbs, most famously in 1949, 1967 and 1992. Each time, as the UK lost its economic footing and sterling collapsed, the people of Britain were left to inhale the stench of political desperation."

Emerging economies battle for more voting rights at IMF

Independent
"There was some progress at last week’s G20 meeting in Pittsburgh, but until details are agreed, the balance of power between key economic players remains unresolved. Under existing arrangements, the industrialised countries hold 57 per cent of the IMF votes. But the financial crisis has tilted control away from heavily indebted mature economies, such as the US and the UK, in favour of the fast-growing, cash-rich, so-called “Brics” economies of Brazil, Russia, India and China."

Alistair Darling's big speech with little meat

The Times
"There was no new news, as such, on top of what has already been made public by the Financial Services Authority — and, as CBI director-general Richard Lambert pointed out immediately afterwards, seemed more to be “red meat” to appeal to conference delegates rather than anything else."

The gold rush fuelled by fear: Thousands of small investors flock to bullion for safety

Daily Mail
"Evy Hambro, who runs the £1.7billion BlackRock Gold & General investment fund, which invests in gold mining shares, says: 'First it was fear of recession and now it is fear of inflation and worries over the weakness of the US dollar. People are looking for gold as a currency that can preserve their purchasing power over time.'

Money figures show there's trouble ahead

Telegraph
"Private credit is contracting on both sides of the Atlantic. The M3 money data is flashing early warning signals of a deflation crisis next year in nearly half the world economy. Emergency schemes that have propped up spending are being withdrawn, gently or otherwise".

Bank says recovery could prove a false dawn

The Times
"Giving an economic overview, the minutes said: “There had been a number of developments during the month with positive implications for the short term . . . But the lesson from previous financial crises was that they were not resolved quickly, and that there could be false dawns."

G20: Passing the buck in Pittsburgh

Guardian
"There's nothing like a crisis to bring out the best in people, particularly international statesmen. Unfortunately, the very real problems facing the world don't look like a crisis any more. The banking disaster, which temporarily united April's G20 in London, has passed before politicians had time to work out how to stop it happening again. Friday's return summit in Pittsburgh threatens to turn into a rather less dignified game of passing the buck."

The perfect New Labour scandal

Independent
"The tale of Patricia Scotland and her Tongan illegal so neatly encapsulates so many of New Labour's least enchanting traits (arrogance, incompetence, lust for needlessly intrusive law, venality, reliance on whitewashing, the smugness and exhaustion of those in power too long, and, above all, startlingly brazen hypocrisy) that it has the flavour of a crude satirical conceit. It is also an indecently perfect morality play about the dangers of the centre left hopping into bed with right wing tabloids. Invariably, they emerge with a discharge and itchy rash."

King keeps door open to 'money printing' scheme

The Times
"Three policymakers, Mervyn King, the Bank's Governor, Timothy Besley and David Miles, had wanted to increase QE to a total of £200 billion in August but the remaining six members of the MPC voted to increase quantitative easing by £50 billion."

Germany declares economic war

Telegraph
"Remember that Herr Steinbrück is not a journalist, pundit, or back-bench maverick. He speaks officially for the German government and for the German nation on the international stage. ....What he said, in effect, is that Germany will marshal its forces to ensure that a chunk of the British economy is shut down - whatever the social consequences. This is the closest thing I have seen to a declaration of economic warfare in Western Europe in my lifetime."

No full recovery until 2015, says the IMF

Telegraph
"The warning, contained in a pre-released chapter of its World Economic Outlook, undermines hopes among economists that the UK is poised for full recovery."

We are entering a new age of protectionism

Telegraph
"The 21st-century form of protectionism is no less deadly than its 1930s predecessor - just less visible....However, such visible signs of protectionism tell a fraction of the story. For the shocking truth is this: over the past year, the costs and obstacles faced by exporters have, according to a study by economists David Jacks, Christopher Meissner and Dennis Novy, increased by almost the same scale as in the early 1930s when the US and others were imposing a range of protectionist laws, including the infamous Smoot-Hawley Act."

What could go wrong next ?

John Redwood
"I am less concerned about the immediate inflationary threat than I am about the debt threat. It is a strange idea that you can cure a crisis brought on by borrowing too much in the private sector, by borrowing too much in the public sector. The government has got away with its huge overborrowing so far by printing the money to raise the money for the borrowing. The Bank has decided to keep long term interest rates low,by printing money and buying government debt. At some point they have to stop doing this. Then we will discover what the true cost of government debt will be."

Britain's budget deficit widened to third worst on record in August

Telegraph
"Government borrowing soared to the third highest monthly amount on record, fresh figures showed today, underlining the hole the recession has blown in the public finances. ....
The Government has now borrowed £65.3bn since the beginning of the financial year in April, compared with £26.1bn at the same point last year, and economists said the Chancellor's Budget forecasts were at risk."

Public debt hits £800 billion - the highest on record

The Times
Comment: Must see this..
"Britain is clocking up debt at a rate of £6,017 per second as the Government struggles to balance the books. With tax receipts plummeting because of the recession, state borrowing grew by £16.1 billion last month — almost twice the entire budget for the 2012 Olympics...
John Hawksworth, chief economist at PricewaterhouseCoopers, said: “It seems likely that budget deficits will overshoot Treasury forecasts not only in 2009-10 but for years to come.” Philip Hammond, the Shadow Chief Secretary to the Treasury, said: “We used to worry about borrowing £16 billion in an entire year. Now Labour have done it in just one month. These shocking figures show the depth of Gordon Brown’s debt crisis and just how irresponsible he was to pretend that spending cuts weren’t necessary.”

Pound 'will fall to parity with euro'

Telegraph
"Sterling weakened yesterday to close at just over 90p to the euro for the first time in four months, amid renewed concern over the state of the British banking system. .....
The Bank has also indicated that it is open to loosening monetary policy further by extending its quantitative easing programme (QE) beyond the current £175bn ceiling, should conditions deem it necessary."The Bank will have little choice, other than to maintain an extremely loose monetary policy over the coming years to compensate for the sharp tightening of fiscal policy," the BNP Paribas note said, referring to the Government's need to bring the public finances under control."

Ireland releases details of €54bn 'bad bank'

The Times
"The Irish government's 'bad bank' will pay out €54 billion (£48 billion) to remove toxic loans from the country's main high street banks, the finance minister Brian Lenihan told the Dail today.In the biggest financial rescue package in the State's history, Mr Lenihan said the National Assets Management Agency - Nama - will issue Government bonds for €77 billion (£68.5billion) in borrowings."

Gordon Brown's 'costs of failure' will reach £256 billion

Telegraph
"Leaked Treasury documents have revealed the Government’s own bleak forecasts for rising welfare payments and debt interest costs. The figures, which were not revealed in this year’s Budget, show the scale of the damage that will done to the public finances by rising unemployment and the soaring national debt."

Osborne's path from austerity to prosperity is in the right direction

Telegraph
"For the Tories it was a significant victory yesterday to witness Gordon Brown finally admitting to what any sane person had concluded was necessary not just a year ago but at least two years ago as we entered this crisis. Cuts in public spending to stem the new crisis of public debt."

UK unemployment jumps: Britain has the sad air of the 1970s this autumn

Telegraph
"The problem for Brown and the UK is that both the Tories and the unions are right. Public spending needs to be slashed. And the consequences for the economy are going to be bloody."

Unemployment hits 14-year high of 2.47m as one in five young people are now jobless

Daily Mail
"Unemployment has jumped to its highest level since 1995 as Britain's recession continued to bite.The number of people out of work rose by 210,000 to 2.47 million in the three months to July, official figures showed today.The recession's impact on young people was underlined by jobless totals among 16-24-year-olds reaching 947,000 - the highest level since ONS records began in 1992.The jobless rate among this age group is a record 19.7 per cent, meaning one in five is looking for work."

The three TRILLION pounds Labour blew in 12 years of profligate spending

Daily Mail
"After 12-and-a-half years of New Labour government, £3trillion - that's £3,000,000,000,000 - of our national wealth has been spent, which amounts to £50,000 for every man, woman and child in the country. ....During the economically healthy years, Gordon Brown claimed to have abolished the old boom-and-bust economics.In fact, he made this claim more than 100 times in the Commons alone. But while preaching prudence, he spent more than he collected in tax every single year he was Chancellor. .....Under Labour, the power and funding of quangos has ballooned.Although officially their numbers have dropped from 692 in 1998 to less than 564 today, the number of people they employ has risen from one million to just over 1.5 million.And their spending has risen too, from £49 billion in 1998 to £130 billion a few years later.
.....In the NHS, since 1997 the average salary of an NHS chief executive has doubled to £158,000. And there are 20,000 more NHS managers, costing in total £3billion a year.
.....In education, despite twice as much spending in real terms since 1997, our performance in the Organisation for Economic Cooperation and Development's league tables on reading, maths and science has declined. .....Ninety per cent of Britain's six million public sector workers enjoy gold-plated, index-linked final-salary pension schemes, an increase of 800,000 under Labour.That's helped push public sector pension liabilities up to £880billion, an increase of 140 per cent on 1997."

Bribing voters with their own money is no longer an option

Telegraph
"This election will be utterly different from the 17 before it - because parties will be judged on how they cut, not how they spend, says Frank Field ....This recession, however, has damaged the structure of the economy: the Institute for Fiscal Studies calculates that it has wiped out nearly five per cent of our total wealth. That means the country is permanently poorer, and will take well over a parliament just to restore its lost wealth.
....The Government admits that, even with the economy growing once again, there will still be a gap of £80 billion in 2013 between revenue and spending. ....Each week, the Government shovels out another load of debt on to the gilt market. Despite our printing money to buy back debt under quantitative easing, the task of selling more has been far from easy – and there will be something like 35 further debt auctions between now and the next general election, with each week's batch of IOUs proving harder to sell. ...The reasons are simple. Quantitative easing is coming to an end. Britain is borrowing proportionately more than any other major economy, and lenders have a galaxy of countries from which to choose. When the Government is unable to print any more new money to buy its own debt, the market will insist on higher long-term interest rates. This will not only make it more difficult to sustain an economic recovery, but it will increase the cost of servicing this debt."

Bank's code of omertà broken

Telegraph
"The account is all the more remarkable because of the shroud of secrecy the Bank has managed to sustain, despite its 12 years in the spotlight since being granted independence. Of all the impenetrable institutions of state – the Kremlin, the inner recesses of Number 10, the Secret Intelligence Service – few can rival the Bank when it comes to secrecy."

The story from the inside

New Statesman
"In this exclusive account of decision-making at the Bank of England, David Blanchflower, who this week joins the New Statesman as our economics columnist, reveals how Mervyn King’s mistakes made the recession worse".

Cheap dollars are sowing the seeds of the next world crisis

Telegraph
"After years of selling cheap goods to debt-fuelled Western consumers, China now has $2 trillion dollars of foreign exchange reserves. That's 2,000 billion – a reserve haul no less 25 times bigger than that of the UK. ....More than half of China's reserves are denominated in dollars. So when the dollar falls, China loses serious money. When you're talking about a dollar-reserve number involving 12 zeros, even a modest weakening of the greenback sees China's wealth takes a mighty hit."

Prospect of spending cuts saves Britain's AAA credit rating

The Times
"Moody’s said that although Britain’s public finances had “deteriorated considerably” and brought it “very close” to a possible ratings downgrade, likely public spending cuts after the general election meant that the UK would continue to enjoy an AAA rating. The verdict is significant because a country’s ability to borrow money, and its cost of borrowing, are determined to a large degree by its credit rating."

Recovery talk is meaningless to the man with his P45 in the post

Telegraph
"Unemployment is the only indicator that counts when it comes to confidence, ....
The British economy, I'm afraid, is beginning to resemble a raging junkie, craving regular fixes of quantitative easing and fiscal stimulus. No sooner do Mervyn King and Alistair Darling administer the drugs than the patient screams for more.Just like painkillers, when policy medication is dished out too generously, it transmutes from pacifier to problem. At a recent high of $1,000 an ounce, the gold price is telling us what this problem might be – inflation."

Weak pound might not be enough to rescue UK economy

Telegraph
"Sterling was meant help lift Britain out of recession, but with oil exports falling there are long-term concerns over the trade deficit."

European Commission sees galloping UK debt crisis

Telegraph
"Britain's public debt will explode to 180pc of GDP within a decade unless future governments take drastic measures to restore fiscal probity, according to a confidential study by the European Commission. The projection is more than twice the level forecast by the UK Treasury, which expects the debt to peak at around 80pc before gradually falling as growth revives and tax revenues come back to life.What is shocking is that UK risks decoupling from the other major economies in Europe, vaulting past Germany, France and even Italy into a wholly different league. Ireland is in the worst shape, with debt projected to reach 200pc of GDP."

Britain's economy less stable than Peru

Telegraph
"Britain has a less stable economy than Montenegro or Peru, as a result of the mountain of government debt raised to bail out the banks, according to the World Economic Forum....
The report's authors said: "A significant and growing weakness remains the UK's macro-economic instability, with low national savings, an exploding public-sector deficit (related in large part to recent efforts to bail out the financial sector), and consequential public indebtedness."The soundness of British banks was ranked 126th in the world, after war-torn Burundi and only four places above Iceland."

Does the world have the courage to deal with its debts?

Telegraph
"Deflation is spreading from the core of the global system to the most unexpected regions of the world. It has even reached Latin America. Prices are sliding in Peru, Chile, Colombia, Paraguay, Bolivia, Ecuador, Guatemala, and El Salvador, to the consternation of everybody.Enough of the world has already fallen so far into pre-deflation conditions that any misjudgment by the big central banks from now risks setting off a chain-reaction that may prove very hard to stop. ....Beijing is at last tightening credit, mostly by stealth. We will learn soon whether Market Maoists are better at pricking asset bubbles than Ben Strong's Fed in the 1920s, or Ben Bernanke's Fed today."
--------------------------------------------
China’s $50bn IMF deal puts 'redback' on the world stage (The Times)

Electioneering is putting confidence in Britain's economy at risk

Telegraph
"Those fears make Mr Brown’s message to the G20 that governments should go on another spending spree next year even more extraordinary. I share Mr Darling’s hope that we will come out of recession this year.Yet that exposes the fundamental contradiction at the heart of the Labour argument. If they expect the economy to return to growth this year, how can they continue with large increases in public spending next year that the country cannot afford?Most other countries are looking for ways to turn the spending taps off, not to open them up."

Gold hovers near record price amid inflation fears

Daily Mail
"Gold remained tantalisingly close to an all-time record last night - highlighting Gordon Brown's spectacularly misjudged sale of 395 tonnes of bullion seven years ago.
Concerns that the global economy is facing a painful bout of inflation have pushed the gold price up by $40 an ounce to $988 this week - just short of last March's all-time high of $1,035.The surge in the precious metal exposes the poor judgment of the Prime Minister, who as Chancellor ordered the sale of a major slice of Britain's bullion reserves between 1999 and 2002.The PM dumped 12million ounces of gold at an average price of $275 per ounce, netting the public around £2billion.Had he held on and sold yesterday, the taxpayer would have been £5.2billion richer.The 'lost' windfall would have been enough to build around 400 schools or 40 hospitals."

Gordon Brown’s $1 trillion global rescue package unravels

The Times
"Alistair Darling is scrambling to plug a gaping hole in the $1.1 trillion global rescue package agreed by G20 leaders in London — hailed at the time as Gordon Brown’s biggest success.Some countries, led by Germany, are even calling for the bailout to be scaled back amid fears that it risks burdening economies with too much debt and could encourage inflation.The breakdown of unity reflects the different speeds at which countries are emerging from recession and conflicting views about the outlook for the global economy."

Britain to lag world in emerging from recession

The Times
"Mr Darling is arguing that leading nations must keep pumping money into the global economy to support growth. However, other countries, led by Germany, are calling for a $1.1 trillion global rescue package agreed by G20 leaders to be scaled back amid fears it risks burdening economies with too much debt and could encourage inflation."

Britain to stay in recession as world recovers... but Darling says we must keep on spending

Daily Mail
"George Osborne fired a shot across the bows today as he accused Labour of being in 'complete denial' about soaring public debt and joined the calls for an exit strategy.
'There's a fundamental contradiction at the heart of Alistair Darling's argument. He says that he expects, as we do, that Britain will come out of recession this year - and yet he wants to go on with large increases in public spending next year, when he knows the country cannot afford it,' the shadow chancellor said.'His position has everything to do with the politics of a looming election and nothing to do with the economic interests of the British people.'

UK economy to be last to exit global recession, OECD says

Telegraph
"The Organisation for Economic Cooperation on Development, a Paris-based group of the world's richest countries, said the British economy is likely to still be stagnant by the end of the year. In stark contrast, it believes other leading countries such as America will have returned to strong growth.The UK economy will shrink in the third quarter and register zero growth in the fourth quarter, while America's economy will grow by 2.4 per cent in the fourth quarter and the euro Area's will increase by 2 per cent."

UK pledges extra $11bn to IMF to tackle crisis

Telegraph
"Britain has agreed to increase the amount of cash it is handing to the International Monetary Fund (IMF) after it emerged that the G20 has failed so far to fulfil its pledge to raise an extra $500bn (£307bn) of emergency cash for the Fund."