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GDP forecasts December 30 2013, 0 Comments

As 2013 draws to a close, can we look forward to a more prosperous New Year? This time last year the talk was of an historic triple-dip recession. That did not happen and virtually all current indicators provide a more positive outlook for 2014. The easiest job at the moment must be George Osborne’s script-writer ‘..unemployment down, employment up, inflation down, confidence up, a recovery in the housing market..’ just for starters.

Looking forward, the magic number for 2014 is 2.4%, with the CBI, the OBR and OECD all expecting this level of growth, and with the IMF forecast a little more conservative at 1.9%. In other words, back to its long-term trend rate – that it, the sustainable rate at which no significant macro-economic problems will emerge. Expectations are widespread that growth with come from a continued falling savings ratio, an upturn in fixed investment and solid growth in UK exports sales (which are still below those of 2008!).

Dig a little deeper and performance over the last three years indicates a deep and wasteful output gap, with output failing to get to even half the trend rate for the UK, averaging a mere 0.18%. Productivity has hardly budged over the last three years, with output per hour worked less than at the end of 2010. Also, long term unemployment is edging ever higher. This leads one inevitably to wonder whether the Bank of England’s forward guidance policy is just a little too mean spirited when it comes to falling unemployment. Surely, setting a ‘trigger’ level of 7% is too cautious, even though the Bank is a pains to state that this is not a level which would trigger an automatic increase in interest rates. And clearly it is time for the Bank of England to factor out the buoyancy of the housing market, and give the Chancellor something to do. Raising interest rates are, surely, not the way forward in terms of tackling house price inflation, which, even at its most rampant, creates only a modest wealth effect. But it does, never-the-less, need to be tacked for other reasons – none the least being the widening wealth gap, rising inequality, and falling labour mobility. Sorting out the housing market is, without doubt, the Chancellor’s biggest test to date.


CPI inflation down to 2.1% December 18 2013, 0 Comments

More good news for the Chancellor and Governor of the Bank of England this week as the downward trend in inflation continued. November’s Consumer Price Index (CPI) grew by 2.1% in the year to November, down from 2.2% in October – just 0.1% off target.

Budget analysis March 20 2013, 0 Comments

With interest rates at an all time low, and with QE having run out of steam, it looks like conventional monetary policy is, as least for now, a dead duck. Low interest rates and quantitative easing were supposed to be sufficient to lift the UK economy out of the doldrums and into growth, increased private investment and rapid job creation - so much for the textbooks.

UK government spending round November 09 2012, 0 Comments

Today the Chancellor, George Osborne, announced the results of the recent Spending Round for the financial year beginning April 2015 - just one month before the next General Election. In effect this sets the departmental budgets for the incoming government.