How much pressure is Osborne really under?

A Guardian/ICM poll out yesterday evening shows that George Osborne is the person most people believe should be moved in a cabinet reshuffle.  At the beginning of the day, a Centre for Policy Studies paper noted that it was unlikely his fiscal rules would be met. In this summer season it looks like the pressure is on.

However, in one sense Osborne was probably prepared for some unpopularity.  This is the year spending cuts really do kick in.  Some significant mid term unpopularity was to be expected.  From the Coalition's perspective, the medicine of spending cuts was always going to be difficult to digest.  The mid term point is where the pain is felt most but the benefits have yet to be fully appreciated. The Thatcher governments went through periods when they were behind in the polls and faced vigorous opposition, but then went on to win elections as sufficient numbers of voters believed their policies were better than the alternatives on offer.  On this template, the government can afford to be unpopular given it is three years from a general election.

The problem is that spending cut anger is probably not at its peak and the economy has refused to behave as Osborne predicted.  Had private sector investment picked up along with GDP growth, while voters may have been bearing the brunt of the cuts it might have been possible to argue that better times were ahead.  The situation now is that spending cuts are still being implemented but the economy is going backwards and, moreover, investment is not picking up.  Conservative ideology has led Cameron and Osborne into a faith position:  they have to hold fast despite all.  If they do not, they undermine the reason for the Coalition's existence.  Serial u-turning has raised doubts that their faith will hold, which makes things more difficult politically. Yet it would seem a very odd time to ditch a Chancellor.

So perhaps Osborne is not that worried.  But then, of course, that would be very worrying for the rest of us.

Stephen Beer, 28/08/2012

0 Comments  |  Permalink

Q2 GDP figures revised

Yesterday saw the publication of the second estimate of UK GDP for the second quarter of this year.  The fall of 0.7% in the first estimate was revised up to a fall of 0.5%; still grim.  Upward revisions of construction and industrial production output were the main contributors to the revised figure.

Perhaps the most startling news was the fall of over 3% in real fixed investment.  This is the steepest decline since the same quarter in 2009.  The figures will need greater scrutiny but it could well be that businesses were worried about the Eurozone crisis and reined in investment plans until the outlook improved.  If so, this highlights the main growth problem we have, which is one of confidence.  Without sufficient confidence even ultra low interest rates and Quantitative Easing will not be sufficient.  That is why a government whose main philosophy is to sit back and let the private sector pull itself up by its bootstraps will ultimately have few answers to the lack of growth we are facing - at best.

Stephen Beer, 25/08/2012

0 Comments  |  Permalink

Interesting take Akin comments in US

This is an interesting take on the Akin comments in the US on abortion and rape, looking at the implications for the senatorial battle in Missouri, from a UK visitor to the US.


Stephen Beer, 22/08/2012

0 Comments  |  Permalink

Greek travails

Greece is in the headlines again as it seeks more time to implement the austerity measures it agreed to as a condition of its latest bailout.  Despite resistance, it is reported as likely it will get more time.  The alternative, a 'Grexit', is not something Eurozone leaders wish to contemplate, as least for now.  Meanwhile, there is much speculation about what action the ECB might take with regard to Spanish and Italian government debt; earlier comments from the ECB President suggest the ECB will need some movement from Eurozone governments before it acts.


The UK is insulated by having its own currency but policy failure in the Eurozone could lead to further declines in GDP (and demand for UK products) and if the Euro fell against sterling that would present UK policy-makers with an additional dilemma as UK products would be more expensive to Eurozone importers.


Rather than wait for something to turn up, Micawber-like, the UK government needs to take action itself to help stimulate demand, particularly investment demand.


Stephen Beer, 22/08/2012

0 Comments  |  Permalink

Where the Bank of England places its faith...

It is impossible to read the latest Inflation Report from the Bank of England, published yesterday, without encountering its optimism, or at least hope, in the Funding for Lending Scheme (FLS), launched last month.

The FLS was launched jointly by the government and the Bank.  The aim of the FLS is to "provide strong incentives for banks, building societies and related specialist lenders to expand lending to UK households and companies".  Banks place collateral with the Bank of England which lends them UK Treasury bills for up to four years for a fee.  These bills can then be used to borrow money from the market at close to the Bank rate.  Banks can borrow up to 5% of their current loans to households and companies as well as any net expansion of their lending to the UK real economy up to the end of 2013.  Five percent of the current UK banking loan stock is £80bn.  The fee charged depends on whether banks maintain/increase or decrease their net lending.

The FLS should reduce funding costs for banks, which should reduce borrowing costs to households and businesses and/or increase lending.  This makes a big assumption that banks don't just boost their own profits and capital ratios (which, by the way, regulators are encouraging them to do).

The Bank had estimated that UK bank lending "was more likely to decrease than increase over the coming 18 months".  However it now believes the FLS will prevent that outcome.  So even the downgraded GDP forecasts in the Inflation Report rely on this new and belated funding scheme being successful.

Stephen Beer, 09/08/2012

0 Comments  |  Permalink
 Older Posts 
Bank of England Inflation Report
 Recent Articles 
Labour and the coronavirus crisis 
An election of peace, good will, and hope? 
Standing for Vauxhall 
It's not enough for investment funds to quote development goals 
Clearer and firmer line against anti-Semitism needed from Labour Leadership 
 Labour News