A Nice Surprise for Chancellor Gideon.
The UK economy grew 0.6% in the fourth quarter of 2015, higher than the previous estimate of 0.5%.
As a result, the economy grew by 2.3% for the whole of 2015, rather than 2.2% as previously thought, according to the Office for National Statistics (ONS).
Unsurprisingly, the figure came as a surprise to experts, who had forecast that it would remain unchanged.
One wonders whether Chancellor Gideon will blame the Global Economy for this morsel of good fortune.
Cyprus: A blessing in disguise?
The United States, the Eurozone and even our own administration here in the United Kingdom have shown us that we are fast approaching the time for a major rethink of the Democratic Model.
The Global Economy is becoming permanently unstable and far too technical to be in the hands of gifted amateurs. Or, in the case of the United Kingdom: the “Gentleman Politician”.
By all means, allow the Elected Ones to fanny about with the politics but sharp-end economics should now be in the hands of professionals who do not constantly keep one eye on the opinion polls and the other on their next election.
There have already been attempts to install Technocrats, e.g. Italy and Greece – but these were no more than economists dressed as politicians, who were then expected to play politics. Inevitably, they crashed and burned.
Cyprus is the latest to demonstrate that politics (of any flavour) coupled with an absolute inability to Manage at Macro level is slowly killing economies.
Some may repeat the “But it’s those bankers” mantra…. and to a certain extent they are correct. However, the Root Cause is the politicians’ inability and unwillingness to manage the banks, themselves and the economy.
Cyprus should not only be a very loud wake-up call but also a watershed moment for Western politics.
United Kingdom and Miracle-Gro?
“Growth” is a word which is used far too rarely in all the messages and communiques which we have become accustomed to hearing emanate from the million-and-one Euromeetings.
Consequently, it is refreshing to see something (anything) written-down which indicates some intent from our own government.
On the face of it, a raid on Pension Funds (see below) does not look like a good plan and none of the goals (below) have dates attached to them. If they did have dates , we would probably realise that this is not a plan for an immediate growth-explosion but something which first needs to be created, drawn, discussed, re-discussed before the first spade is ever sunk into the ground. Neither is it an integrated plan – on the contrary, it can best be described as a series of disparate initiatives.
These projects will NOT make the country any richer, because they represent a “spend” rather than an “earn”, that is to say, they are not something which we can exchange for goods or cash with other countries. These are job-creation schemes which are often confused with proper growth.
Nevertheless, it’s a start. We have lift-off!
The Chancellor of the Exchequer, George Osborne, and the Business Secretary, Vince Cable, have announced a wide-ranging package of more than 140 reforms to build a stronger and more balanced economy. These measures include actions from the second phase of the Government’s Growth Review Phase II and the National Infrastructure Plan.
These measures are supported by an infrastructure package of £30 billion. This includes unlocking up to £20 billion of private investment through signing a Memorandum of Understanding with two groups of UK pension funds, an additional £5 billion of infrastructure spending in this Spending Review period, and commitments to £5 billion of capital projects in the next Spending Review period. In addition, the Government is supporting around a further £1 billion of investment by Network Rail.
To make the UK’s infrastructure fit for the 21st century, the Government has published its National Infrastructure Plan 2011. The plan sets out a critical analysis of the state of the UK’s infrastructure and sets out a pipeline of over 500 infrastructure projects. It commits to clear ambitions to address the key challenges in each major infrastructure sector – energy, transport, telecommunications, waste and water.
The key measures in the National Infrastructure Plan include:
- introducing a new approach to financing infrastructure, by leveraging £20 billion of private investment from pension funds;
- giving local authorities more flexibility to support major infrastructure by considering local borrowing to fund the Northern Line extension to Battersea, and exploring new sources of revenue, such as options for tolling on the A14.
- investing over £1 billion to tackle areas of congestion and improve the national road network, including £270 million for two new managed motorway schemes at congested times on the M3 and M6.
- investing more than £1.4 billion in railway infrastructure and commuter links, including £270 million for a rail link between Oxford and Bedford and £390 million on enhancement and renewal works to improve stations and infrastructure.
- investing £100 million to create up to ten ‘super-connected cities’ across the UK, with 80-100 megabits per second broadband and city-wide high-speed mobile coverage.
- The Chief Secretary to the Treasury, Danny Alexander, will chair a new cabinet committee on infrastructure, to push through the delivery of the top 40 priority projects and programmes that are critical for growth.
The second phase of the Government’s Growth Review has been led jointly by HM Treasury and the Department for Business, Innovation and Skills (BIS). The Autumn Statement announces a set of further reforms building on this, including:
- creating a £20 billion National Loan Guarantee Scheme, to lower the cost of loans to small businesses, and a £1 billion Business Finance Partnership, which will lend to mid-sized businesses and small and medium sized businesses in the UK through non-bank channels.
- increasing the Regional Growth Fund by £1 billion to provide ongoing support to grow the private sector in areas currently dependent on the public sector.
- an extra £600 million to fund 100 additional Free Schools, and an additional £600 million to deliver an additional 40,000 school places.
- introducing a new build mortgage indemnity scheme which will help up to 100,000 families to buy their own home, and launching a new £400 million Get Britain Building investment fund to progress stalled developments.
- providing £45 million of support to UK firms wishing to export, doubling from 25,000 to 50,000 the number of SMEs supported, and making similar support available to 500 mid-sized businesses.
- making 100 per cent capital allowances available in six Enterprise Zones (Black Country, Humber, Liverpool, North Eastern, Sheffield, and Tees Valley).
- making available around £250 million from 2013 to support energy intensive industries manage the costs of electricity, including increasing the relief from the climate change levy on electricity for Climate Change Agreement participants to 90 per cent.
- an additional £200 million for science capital investment.
- investing £55m into the Strategic Rail Freight Network to help deliver schemes that remove bottlenecks and improve capability and longer term connectivity to the UK’s major ports.
- giving a bigger role to businesses in purchasing vocational training programmes. In the New Year employers will be invited to bid for a share of a new £250 million government fund. This will route public investment directly to employers.
- taking decisive action to remove barriers to hiring by making reforms to streamline employment law.
- investing £10 million over five years from 2013-14 in Project Enthuse, matched by investment from the Wellcome Trust, to improve the quality of science teaching in schools
- announcing how the Government will maximise the value of public sector data.
The Chancellor of the Exchequer, George Osborne, said:
“We are committed to making Britain the best place to start, finance and grow a business. The measures I am announcing today will help us to achieve this by creating an environment in which businesses are easy to set up, have access to credit when they need it and are able to grow without being held back by red tape. This action supports our deficit reduction plan and the Government’s monetary activism as we build a balanced economy.”
Business Secretary, Vince Cable, said:
“These measures are an important element of the Government’s work to create the right conditions for business to start up, invest, grow and create jobs. They sit alongside our deficit reduction plan and work to increase the supply of credit.
“I attach particular importance to infrastructure and Government capital spending, including that on innovation and science, and the credit easing initiative. Speedy and effective implementation is now required, building on the major progress that has been made implementing phase one.”
The first phase of the Growth Review was published in March 2011. Work has started on all 137 commitments and substantial progress has been made. The Government has published an update on every single measure announced in The Plan for Growth.
Where’s that paddle?
No Government can ever act on the basis of certainty. It is always forced to act on the basis of probability. In other words, there is no REAL idea as to when the current financial mess will end so decisions and actions are based on a “best-guess” basis.
Stock market prices lie in expectations for the future. It is a constant battle between optimism and pessimism. When there is optimism one expects:
Confidence in the Banks and the Marketplace
Consumers confident enough to engage in long-lasting spending sprees
- Rising prices
During a period of pessimism, the converse is true.
Depending on whether you are an optimist or pessimist, you will be anticipating one of the following (most probable) outcomes:
Uncontrollable money-printing and excess spending on bailouts and stimulus , producing a new, super-inflationary environment with a falling Pound and rapidly accelerating unemployment. (Option A)
A major change in capital flow evidenced by shifting consumer and bank attitudes, thereby generating a period of deleveraging and deflation that will eventually produce a economic rebalance and a strengthening Pound. (Option B)
Needless to say, the Government is hoping for Option B but at the same time it is running up its (our) budget deficit to historic levels and will soon be printing money like confetti.
The fact that unemployment is heading for a new record and consumers are spending far less means that the Government has painted itself into a corner and can only lead the country to Option A.
Our collective wealth in stocks and housing has been destroyed and Sterling is at a 23-year low against the Dollar which, post-Obama, will gain strength, thus further eroding the Pound.
Yes, we are up dirty creek without a paddle.
Notwithstanding the odd Minister-induced “virtual” green shoot and platitudinous attempts by government to tell us that “We’ll get through this”, the current perception both within the banking system and the real world is one of overwhelming pessimism.
The low Bank Base Rate and lack of consumer confidence in (what are still laughingly referred-to as) “lending institutions” will result in more and more money being kept under the mattress. The banks are doing it so why shouldn’t we?
The government should set sail for Option B (above). Unfortunately, it appears that no-one has any idea of where to start and the rudder appears to be broken.