Tag Archives: UK economy

The Bank of England’s QE hurdle shows the economy needs more than stimulus

This week, Augustin Eden from Accendo Markets tells Hot Commodity why the Bank of England’s QE troubles show the UK economy needs more than stimulus to boost consumer confidence…

Some awkward moments for the Bank of England over the last couple of days have again hit confidence in the ability of central banks to sort out economies when things turn sour. The UK’s central bank was unable to buy all the gilts (UK government bonds) it wanted when pension funds decided they didn’t want to sell – and why would they? Pension funds are the most risk averse of investors, required to have a virtually guaranteed stream of income to use to pay peoples’ pensions as and when the time comes.

Interest rates on government debt are now being driven towards zero – some shorter dated gilt yields have even dipped negative in the last two days. What will the pension funds do with the cash anyway? They’ll probably try to buy more bonds or even invest in defensive equities, but equities are riskier. Trying to encourage pension funds to take more risk is a dangerous move and, importantly, is something you can’t cloak in the smoke and mirrors of technical jargon. Listen to a central bank press conference and there’s little to be gleaned by those who aren’t versed in economics or market speak, but anyone can work out what it means for pension funds to take more risks – it means their pensions are at risk.

Likewise, everyone can understand what it means when pension funds can’t find the guaranteed income they need. Again, pensions are at risk. A healthy economy does of course depend on business confidence – if there’s plenty of cash in the system and it’s cheap to borrow, then you may as well spend and invest. But business confidence depends on consumer confidence, and I would argue that the latter is more immediate.

This throws up a major issue. If people are worried about their pensions – the one thing they should be able to rely on – then they’re not confident. If quantitative easing and other economic stimulus measures are not increasing consumer confidence then we have a problem. When you look at somewhere like Japan whose government and central bank have been engaged in stimulus activities for years and whose economy is still merely limping along, it could soon be time to start thinking about simply putting money directly into people’s pockets.

This commentary was produced exclusively for Hot Commodity by Accendo Markets: https://www.accendomarkets.com.

Breakfast with Hot Commodity: the Brexit debate

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Hot Commodity’s inaugural event, held yesterday morning at The Clubhouse in Mayfair, went off with a bang! JD Wetherspoon boss Tim Martin and Philip Davies MP went head-to-head with economist Vicky Pryce and entrepreneur Alex Mitchell to debate the highly topical issue of Brexit ahead of the EU referendum.

The well-informed panellists did not hold back – from Philip calling Vicky’s pro-EU arguments “drivel” to Tim calling the Treasury “George Osborne’s PR department” and the chancellor “disreputable”.

The be-leavers

Publican Tim gave a spirited argument as to why we should leave the EU, centred around democracy and the need to control our own laws.

“If you look around the world, the successful economies are democratic and have a very high level of democracy that you don’t have in Europe,” he said.

“The European Court judgements, we have no control over and are supreme. The European Commission isn’t elected. It frames the laws and we cannot sack them. It is not democratic. And the 751 Members of European Parliament are too remote to be democratic,” he added.

Eurosceptic Tory MP Philip Davies, who founded the Better Off Out campaign in 2006, focused his argument on how much we could save by leaving the EU.

“We should be ashamed of ourselves that we are handing over £10.2bn this year to be part of a backward looking, inward-facing protection racket set up to prop up inefficient European businesses and French farmers,” he said. “This is not what the UK has ever been about and should not be what the UK should ever be about.”

Stronger in

But remain-ers Vicky and Alex fought back with equal force. Vicky, who is on the board at the Centre for Economics and Business Research, argued that the benefits outweigh the disadvantages of being in the EU.

“There is no doubt at all that having been part of the EU has helped us quite substantially in the past few decades,” she said, explaining that it helps “productivity, innovation and investment”.

“What it also does for the consumer and of course any entrepreneur who has to sell the goods is that it is a very keen market in terms of prices,” she added. “Look what’s been going on as the markets opened up in the airline sector…and the telecoms sector. There has been a huge consumer benefit coming out of this, with a huge increase in the number of possibilities in terms of what can be offered.”

Alex, an entrepreneur and UK President of the G20 Young Entrepreneurs Alliance, conceded that Brussels is “a difficult beast” that “needs change”, but emphasised the benefits of being part of a larger economic union for smaller and fast-growing industries.

He made the point that UK businesses have benefited hugely from EU programmes such as the Horizon 2020, which is providing nearly €80bn of funding for research and development projects over the seven years to 2020.

Trade deal or no deal?

Tim made the point that there is currently no trade deal between the UK and the US and that “it hasn’t done us too badly for the last couple of hundred years”.

“We buy our wine from South America, Africa, New Zealand and Australia. For many years I asked why aren’t we able to get better deals from the French, but we just can’t,” he said, disputing the idea that there are better trade deals to be had in the EU.

And Philip argued that with Britain’s £62bn trade deficit with the EU, it would be easy to secure a free trade agreement – as we have far more to offer the bloc than the likes of Norway.

Vicky came back with a strong riposte to the leave team, who also had concerns about the high levels of immigration coming from EU countries:

“It’s interesting to think we can have an even better deal, with completely free access to the market…Are you telling me we can have everything we want if we leave, but [without] people coming into this country? The chances of achieving that are peanuts.”

She also hit back at Philip’s criticism of the EU being a declining part of the world economy, saying: “If you look at the growth of the countries that we are dependent on and that we would like to be trading more with – and nothing has stopped us so far doing this – or the BRIC countries with the exception of India, they are all in recession. We can’t rely on those parts of the world.”

Rates and rumours

Tim blasted chancellor George Osborne for warning that a Brexit could lead to higher interest rates, labelling him “disreputable”.

“After the 2008 economic crisis, the pound went down, inflation went up for several years and what happened to mortgage rates? They went down,” he said.

“It was highly disreputable for the chancellor to give rise to headlines that say that mortgage rates will go up in an economic crisis, when the last time, they went down.”

Vicky qualified the central bank action by saying that the Bank of England had “very sensibly decided not to raise interest rates in the middle of a recession”.

Interested in taking part in – or supporting – the next Breakfast with Hot Commodity event? Email info@hotcommodity.co.uk.

If it’s a boom period, why are we not feeling any richer?

As a financial journalist, assessment of where we are in the economic cycle is inevitable in most conversations I have through work.

Recently, industry professionals have casually thrown in statements such as “we’re due another recession” and “they’ve only been through a boom period” when talking about new businesses.

When people talk about this year’s global market turmoil slowing down the UK’s recovery, it evokes images of some sort of financial Mardi Gras that we’ve all been enjoying, soon to be curtailed by drama in the commodities market and political crises in Russia and the Middle East.

While I accept that the statistics support these assertions, it somehow jars from a personal finance perspective.

It comes down to two things: wage growth and property prices. Growth of pay packets slowed to 1.9 per cent in December, down from a high of 3.3 per cent last summer.

Property prices are ballooning in London and rising fast in other parts of the country, namely due to a supply shortage and population growth. Average UK prices hit a 10-month high in February, according to Nationwide.

Yes, interest rates are likely to remain low due to the imminent threat of a China-led global economic meltdown, but what use is a low borrowing rate if you can’t afford to save for a deposit or pay off a mortgage in the first place? Add into the mix the tightening of the credit market and it would be easy to see how one would miss the fact that we’re allegedly in a boom period.

The threat of a continued commodities rout, geo-political woes in the Middle East and China’s economic slowdown may be keeping George, Mark and the rest of the financial elite awake at night, but for the rest of us, it’s business as usual.

President Trump could put UK exports in jeopardy

The UK’s biggest export partner could be put in jeopardy if Donald Trump were elected President of the United States.

The controversial Republican candidate has suggested putting an eye-wateringly high tariff of 35 per cent (or more!) on imported goods in the US, in a bid to boost home-grown US industry.

His comments seem predominantly aimed at the Chinese market, but if a tariff were wielded on all exports to the US, this could have a marked effect on the UK economy.

The UK exported around £37.4bn-worth of goods to the US in 2014, equating to 12.7 per cent of the UK’s goods exports, according to data from economic think tank Capital Economics. When combining goods and services, the US made up 16.4 per cent of our export market that year – a hefty chunk not to be sniffed at.

Economists have widely condemned Trump’s protectionist policies, arguing that the cost of tariffs would be passed on to US consumers in the form of higher prices. But of course, they could have some of their desired effect and prompt US businesses to choose domestic goods where they have the option.

The UK export market has enough to worry about at the moment, with a potential Brexit and all the uncertainty around EU trade levies that would bring. Getting Trump-ed (geddit?) for crucial exports in the US could have a devastating effect.

Furthermore, by pushing US consumer prices up and squeezing the labour force (by removing illegal immigrant workers and discriminating against legal ones), some think that Trump’s policies could cause a major downturn in the US economy. As the old adage says, when the Dow Jones sneezes, the rest of the world catches a cold…

Are you hoping Trump comes up trumps or are you hanging on for Hillary? Email your thoughts to Hot Commodity at info@hotcommodity.co.uk for the chance to have your comments appear on the blog and win a luxury holiday for two (except not the last bit).