The Week in Review – borrowing figures disappoint, the latest revisions to GDP Q1 change nothing and the April service sector data confirm growth of 2% in the month. Down load The Saturday Economist 30th June
This week the Bank of England and members of the MPC were in front of the Treasury Select Committee. The Governor is already ripping up the forecasts for growth for the current year suggesting we may have five more years “to get through this”. Note: Mervyn King retires next year.
The Bank forecasts for growth may have been a tad optimistic but really the “Black Cloud” gang in Threadneedle Street are overdoing it a bit. The service sector growth figures for May suggest modest growth of around 2% and the latest GDP revisions to the first quarter presented no surprises.
Technically, we are not in recession but flat lining until household real incomes recover. As for output, the service sector is the key to growth, the march of the makers having ground to a halt. OK the April figures look a little bit better because everyone had a day off for the Royal Wedding last year but even so.
The borrowing figures for May will not help sentiment, as the PSNBR came in almost three billion ahead of last year. £17.9 billion compared to £15.2 billion. VAT the only revenue hike as income and corporation tax revenue fell. Spending on social security and debt service are creating a problem for the Treasury abacus.
It is too early to suggest the borrowing targets will be missed this year but the current run rate would put borrowing at £149 billion (excluding the sorting of Post Office Pension Fund), this would be a disaster for credibility and for funding.
As for credibility, it has not been a great week for the Chancellor nor the Treasury. The about turn on the petrol duty was about as well handled as a Heathrow immigration queue.
The decision to postpone the petrol duty into January could have been a PR coup. It was not. The management of the process was inept compounded by the decision to put Chloe Smith, the Treasury Junior minister on Newsnight. “Do you ever think you are incompetent”, asked Paxman to close the session. The audience were in no doubt. An encounter best watched with fingers in front of face or clutching a cushion.
Malcolm Tucker nor Alistair Campbell would never allowed this to happen. In space, no one can hear you scream but on Newsnight everyone can see you squirm, cough and splutter.
The bankers slipped closer to Muggers and Chuggers in the least loved occupations index monitored by the Governor and the Prime Minister this week.
Banking traders were accused of manipulating LIBOR rates for a bottle of Bollinger and someone called “Big Boy”. Rates affecting millions of borrowers the headline. The FSA discovered falsification in 257 e-mails affecting trades in Euro and Yen rates but not Sterling. With $1.5 trillion dollars traded daily, let’s face it, it is difficult to manipulate rates anymore than one can toss a pebble from the beach to hold back the tide.
Confusion for many as to what LIBOR actually is. Thank heavens the dealers were not accused of abusing SONIA or fiddling with RONIA, then the red tops would been incandescent.
More news from the Saturday Economist next week, Don’t miss the Sunday Times and Croissants, Have a great week-end, JKA [SONIA - Sterling Overnight Interbank Average; RONIA, Repo Overnight Index Average]
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