Economics News this week, OK to miss the borrowing targets says the Governor…
The Governor of the Bank of England gave a rare interview this week on Channel 4 news. Mervyn King suggested it was OK for the Chancellor to miss the deficit targets in view of slower growth. Especially if low growth was a result of lower growth in the world economy. “Don’t attempt to bring that deficit down if this is a result of slower growth” he said. So are we all Keynesians now. So much for the task of getting to grips with the inherent structural deficit still around 5% of GDP.
Borrowing figures ……
Just as well because the borrowing figures released on Friday confirm that excluding the one off delivery from the Post Office Pension fund, borrowing is 20% above last year’s level and on track to exceed £140 billion in the current year. Public sector net borrowing was £14.4 billion in August 2012, roughly the same as August 2011 but the current year includes £0.5 billion from Olympic ticket sales to get us over the line.
Year to date total borrowing is £44.9 billion compared to £35.6 billion last year. Overall revenues are flat, taxes on income and wealth are down by 3.5%, the deficit offset by a 3% increase in VAT revenues. Total expenditure is up 3% driven by a near 7% increase in social benefits. Total borrowing is over £1 trillion at 66% of GDP. This is a real problem for The Treasury. The plan needs growth to bring the deficit down but to get the deficit down also requires real cuts to spending plans.
The governor was relatively upbeat on growth prospects avoiding the green shoots allotment trap but suggesting there were some positive signs for the economy. Black clouds featured only once in relation to the uncertainty hanging over British business as a result of ongoing Euro challenges.
Perhaps he was thinking of Retail Sales. On Thursday, the ONS released the retail sales for August, up by some 2.7% in comparison with prior year. Retail sales values were up by some 3% reflected in the higher VAT take. Retail spend in the four weeks of August is estimated at £26 billion compared to £25.3 billion last year. What to make of it? It is growth perhaps reflecting the slowing improvement in household fortunes as inflation falls.
On Tuesday, the ONS released inflation figures for August. Retail prices CPI based fell to 2.5% compared to 2.6% in July. RPI and RPIX fell to 2.9% from 3.2% prior month.
Furniture, household goods, clothing, footwear and household services were pushing inflation down as transport and alcohol prices move in the wrong direction. Driven to drink the overall explanation as the great inflation divide continues. Goods inflation fell to 1.8% as service sector inflation slowed to 3.2%.
Will inflation hit the 2% target this year? More analysts are sceptical despite the slip in oil prices, closing this week at $111 dollars Brent crude basis down $5. The Saudis provided volume to ease the price lower.
Markets couldn’t hold last weeks moves, the FTSE closed at 5853 down 60 points in the week, the Dow slipped 20 points to 13579 but in Europe the Dax closed up almost 40 points at 7451 and the French bourse CAC closed at 3530. UK ten year gilts closed at 1.86% and in the US closed at 1.75%. Euro rates were 1.53% The dollar softened further against the Euro to 1.2979 (1.31) as Sterling moved to 1.25 against the Euro from 1.23. The Sterling Dollar cable rate closed at 1.6230. The anomaly is the Dollar Euro rate.
More economics next week, it just gets more interesting. Don’t miss the Sunday Times and Croissants out tomorrow. Baffled by social media? Check out our new social media experts web site and join the professor on campus, it is the Hogwarts of social media.
Have a great week-end. JKA