2011 Q2 Growth figures

Just for the record … it’s being announced that UK 2nd quarter growth is barely positive. One again, there are “special factors” that get in the way – a tsunami and a Royal Wedding, warm weather and Olympics tickets, ffs. These really are very, very poor excuses.

And these are preliminary figures. So there’s still time for that downward revision …

Still, it could be worse, according to our Chancellor. We could live in Greece.

“And it is positive news too that at a time of real international instability we are a safe haven in the storm.”

Watching the TV, it seems that this is our fault – we aren’t borrowing money to spend (even if we can find a bank to lend it). Possibly because those whose jobs aren’t being cut may well be offshored.

Or maybe because we’re saving up to let their kids go to College. Or to help out parents whose care funding has been cut. Or because their pensions are under threat, so they need to save more. And that’s assuming that you can afford food and energy.

Ultimately, the problem hasn’t changed. We’re not making enough. And we need people who have disposable income to buy things. That won’t happen if they’re worried about their jobs disappearing.

So there’s no Income Tax and VAT – both of which help reduce the deficit. So if Ozzie blindly carries on down this path, we’ll end up with even more cuts needed. At the end of the last set of figures, commentators were feeding the line : “if a Chancellor admits there’s a Plan B, then Plan A is dead”. Well, George, you’ve had three months to put together a Plan B. Or – if it’s more politically expedient – find ways to moderate the impact of Plan A.

Stephanie Flanders’ blog points out that we’re not doing as well as comparable countries.

This was, actually, so very foreseeable. I wrote about it in January, because it was so clearly rooted in dogma, rather than economics. It needs sorting out. And I think that means either a Chancellor who actually knows what he’s doing, or one who will listen to someone who does..

[Edit 13:34]

Ozzie apparently thinks this absolutely flat growth has the advantage of “stability” – unlike less stable Euro countries (such as Germany) which actually have growing economies. Unbelievable.

IMF Review of the UK Economy

I’m sorry to keep banging on about this, but much of the deficit reduction pain would be mitigated if we were actually growing our economy. That would mean more taxes, less unemployment and less benefits. Although when it all goes wrong, we can expect our Chancellor to be surprisedly holding up his hands claiming all of this was unforeseeable.

Now all of this is very fraught. It’s a bubble that depends on confidence. So the journalists are telling us that as soon as the existence of a Plan B in admitted, then Plan A is dead. All of which means that we need to read between some especially wriggly lines when looking at reports.

The BBC has been airing a fascinating series by Adam Curtis – “All Watched Over by Machines of Loving Grace“. Which reminded me that the chief  function of the IMF seems to be to safeguard the investment of international bondholders – often at the expense of the economies of the individual nations.

And although the film highlights this in the context of the Far East crashes – particularly the Indonesian riots of 1997 – it’s easy to see the patterns repeated recently in Greece, Portugal and Eire. An initial “bail out” results in a capital exodus, and more assistance is then required. The taxpayers then have to pick up the tab.

A quick aside:

• There’s never actually been much risk of nations defaulting – it’s just another excuse to charge higher interest.
• Maybe the bondholders should carry some of the risk of the free markets they push us all into.
• Ironically, one of the benefits of debt reduction may be that we get out from under this tyranny – but I bet we still continue to borrow money
• According to Peston (from memory), our average debt repayment is 13 years. So there is no real reason to rush the cuts. 

But I digress … The IMF report is apparently supportive of our government’s deficit reduction plan. But once again, we’ve a downgrade of a growth forecast – down to 1.5% from a hardly spectacular 1.7%. But it’ll be alright “in the Medium Term”. Jam tomorrow, then.

Similarly, we’ve got inflation at 4%. And the IMF think this will return to 2% by the end of the year ( presumably as the VAT increase drops out). However, as we’re getting almost 20% increases in Gas prices, and world food prices aren’t reducing I suspect that this might be optimistic.

The IMF is keen not to rock the boat, but as the BBC report points out, the previous assessment of our economy as “on the mend” has been revised to “repair … is underway”.

Actually I’m not on my own here.  A whole bunch of economists have written an open letter to the Guardian suggesting that these policies might need a bit of tweaking. And Stephanie Flanders seems to be keeping real on her ‘blog.

Meanwhile, lots of the cuts have still to be fully implemented, and we’re also hearing that manufacturing output is dropping and confidence in the economy is down to 10%. Retail spending is falling. All suggesting that this experiment in reviving Thatchernomics is whirling us further down the plughole (just as a reminder – it didn’t work the first time).

For heavens sake ….

There’s a BBC report  that Birmingham (my local council) and its partner Capita – through their joint venture Service Birmingham – are going to “offshore” some of the jobs it’s cutting. And there’s another report here which seems to pin this at 145 jobs this year. The words they use to spin this disgraceful tactic are utterly deplorable.

It’s interesting, of course, that this wasn’t something the parties involved seemed to be actively campaigning on in the recent elections.

Service Birmingham say they are talking about a ” limited number of back office technical roles”. As opposed to an infinite number, presumably. They also say they “remain absolutely committed to our Birmingham workforce”. At least, that which is left. And for the time being.

It’s bad enough when the banks use our bail-out money to fund their offshoring ambitions. But it’s utterly disgraceful when local government does the same with our taxes. I caught a clip on BBC Parliament last night, where David Cameron claimed the fact that UK growth (in the last few year) was mostly sustained by public sector growth. Well, it looks like in future the economic growth of the Indian economy will be mostly sustained by UK public sector contraction.

I guess that those 145 jobs are going to mean about £4m-£8m that is being taken from Birmingham council taxpayers that won’t go back into the local economy. The guys in Pune aren’t going to buy their sandwiches in Birmingham. They don’t pay Birmingham Council Tax. They don’t pay UK VAT when they buy things, or contribute Income Tax to the UK economy. They don’t volunteer to support our local community, of course. And they don’t have an interest in the quality of life in the region.

“The council has said it needs to save £212m in the next financial year” the report says. Sorry, but that’s no excuse. Providing services is only the explicit half of what a council is there to do. The unstated part is supporting the local economy – in which case the money doesn’t evaporate, it supports the people and businesses of the region.

This isn’t why we pay our taxes. Birmingham Council must recognise that the their constituents expect that the public money with which they are entrusted should be used – wherever possible – to benefit the economy they are supposed to be promoting.

And that moving these skills abroad is equally shameful. That’s the reason we don’t have  a manufacturing industry any more. Why should any company locate its IT department in Birmingham, when the Council is sending the message that you take it to India?  They should be ashamed.

UK Growth (again)

Again, this is the part of the equation our government ignores.

Mervyn King – the Governor of the Bank of England – has downgraded the prospect of 2011 growth to 1.75%. Performance for this year (once adjusting for December snow) is apparently about flat (i.e. – 0%) over the last two quarters.

Meanwhile, growth in the Eurozone, where cuts are generally not seen as the only solution, is running at 0.8% for the quarter. Over the same period, Germany managed 0.8%. Even Greece is now showing growth. There’s a more informed commentary on Stephanie Flanders’ blog)

Why does this matter ? Well, the economics of governing the country are different from the economics of the country itself, but the two are very closely linked.

So if the nation doesn’t grow, then the government’s income (from tax revenues) is reduced. And if people spend less of their income (because they’re worried about their jobs) then the government’s income (in  terms of VAT revenue) is reduced.

This is at the heart of Keynesian economics (which I learned to A-level). Apparently Vince Cable was brought up on these principles as well.

When a significant proportion of the population are dependent on public sector activity, then they suffer when the cuts bite. And the government loses income. So the deficit increases.

And worse still is to privatise activities which then get relocated to another country. In that case, you’re losing tax revenue, reducing growth and throwing more people on benefits.

There are a lot of people looking for work at the moment – and there will be many more over the next few months. I hear nothing about reskilling them for the future. The narrow view of how an economy works – by using Thatcher’s purse as a metaphor – is ludicrous. That resulted in the loss of our manufacturing capacity back in the 80’s.

However, as our economy is destroyed, the government will carry on saying that – of course – it would have been worse if another path had been followed. And because we can’t go back in time and try anything else, then he can’t actually be proved wrong.

The deficit does need resolving, but it needs to be resolved at a far more considered pace, with growth initiatives in place, properly thought through and promoted.

This is part of my little project to try an keep a track on reports of UK Growth – and comments upon it. You can use the tag search to find all the related articles.

Economic growth (again …)

Our Chancellor now say that there will be “financial turmoil” if he has to ease off on tax rises and spending cuts.

Sorry, Ozzy, that’s a cop-out. If you’re saying you can’t backtrack because it’s too complicated, then you’re just incompetent.

Interestingly, the fact that this is being addressed at all suggests that he’s maybe starting to worry that his plans will go horribly, horribly wrong. The USA, for example, is focussing on growth (apparently successfully) – something which our government is just hoping might come good …

The suspicion of desperation is fuelled by his plan to persuade companies sitting on cash reserves to “start spending that money”.  Good luck with that. If I was running a business, I’d be hanging on to every penny at the moment – given that the banks aren’t likely to lend it out if I need some (I see you’re not expecting the banks to spend the cash any more – even though we own them).  I’d actually be looking to reduce my working capital at a time when demand is falling.