the economy - update

[jaywalker]

er, right. quids, is this just cognitive dissonance on your part?

the Times today reports decisions already-taken to move financial HQs to Dublin (of course!)

Google announced that their decision was conditional on free-movement of appropriately qualified labour (oh the irony of the recent May failed trade talks given that their CEO is Indian)

The inflation figure was unchanged (unless you think the CPI a good measure of the cost of living - if you do then you are in cloud-cuckoo land) with all commentators agreeing there is significant pressure in the pipeline (what do you expect with the sterling depreciation, no cost effects ??).

And, strangely not mentioned by you, the headline in the FT today. Er, a hole in the public finances so big it will scupper all May's plans completely unless there is a huge rise in interest rates to ensure a market for the gilts they will have to sell (and that in an economy with record indebtedness).

Dr Pangloss had nothing on you quids.

[Lordship 516]

???? Wrote:

-------------------------------------------------------

> This week:

> UBS - keeping head office in London 'no plans on

> moving'

> Google - confirm new European HQ in Kings Cross

>

> Yesterday - inflation below expectation

>

> Today - retail sales at their highest growth in 14

> years, way above expectation

Google confirmed that their EMEA head office is in Dublin with over 500.000 Ft Sq committed, London office currently confirmed as UK headquarters mainly tasked to support US operations & is about 160,000 Ft Sq with a further 300,000 Sq Ft on hold subject to government being able to guarantee free movement throughout Europe....

A ?25billion deficit for 2017 & ?80+billion deficit up to 2020 with record public debt.....

12+% price rises on imports......

Future is looking really positive..?

[????]

???? Wrote:

-------------------------------------------------------

> This week:

> UBS - keeping head office in London 'no plans on

> moving'

> Google - confirm new European HQ in Kings Cross

>

> Yesterday - inflation below expectation

>

> Today - retail sales at their highest growth in 14

> years, way above expectation

I'm just reporting fact on that UK performance post the referendum which is currently way, way above what the pessimists were predicting widely (and on here)i didn't even add an opinion! The deficit isn't on my list (and that hole from the FT is based on forecast incidentally, which may well turn out to be true, but is still nevertheless forecast so wouldn't go om my list ) - if you followed my stuff on here on the deficit you will see that I've long believed we are fooked on that anyway (and would have been without Brexit). My point - as someone who once again I stress voted remain - is that things aren't nearly as bad as most predicted YET.

The inflation figure WAS below expectation and consensus Jaywalker - so predictions once again were wrong (see also employment/growth/retail sales...I could go on)

Your and Lordship's posts feel like they reflect your personal and political views and opinions,and on Brexit and your pessimism has thus far have been proved over pessimistic! I'm not Nigel Farage for pointing this out! I have an opinion that things won't be as bad as the most pessimistic say and so far the figures support that - that's not a Dr Pangloss - although you are winning my vote for title of Eeyore of the EDF if we are going to take on great characters of literature :)

[Jeremy]

We need to remember that nothing's really happened yet! There's no point trying to draw any conclusions until we find out what sort of trade deal we're going to get with the EU.

[Earl Aelfheah]

You're right of course Jeremy, although it seems less and less likely that we'll be able to remain in the single market (not sure this was ever really very likely). With the ongoing uncertainty (which is likely to last years) and our probable departure from the single market eventually - it's hard to see how in the medium term our economy isn't going to suffer. Of course the problem is, one will never be able to demonstrate the effect either way. Whether the economy does well, or it does not, who can prove that staying in would have been better or worse? People will seek out the evidence which appears to support their view and everyone will think they've been proved right.

[????]

No all true. But what you can say - with fact - is that, even since the referendum, the economic data in many areas is significantly above the forecasta from the dismal science - and that includes the adjustments they made post referendum, being well aware that 'article 50' hadn't been triggered. We are, so far, doing significantly better than the experts consensus on how we would....

[Lordship 516]

Quids

What you say is true - for now.

Employment indicators are lagging indicators & we are also in a time of decision lag & uncertainty. The worst has yet to come and it will not be pretty. If it won't affect you & you are well sheltered then great but most of the population will suffer.

All that the economists are saying is that in the near future to expect a worsening of unemployment, significant increases in price inflation, a downward trend in the value of the ?, raw materials prices up over 12% already with more rises to come. All of this is on the horizon plus a lot of instability induced because of all the uncertainty due to the many months & years of wrangling within the government and with outside governments. These factors will cause everyone in the UK a plethora of problems - economic, social & personal.

No point in being an ostrich or a lemming..... need to be realistic and plan accordingly. There is little to be optimistic about.

[jaywalker]

The one I really loved this week was the news that, with record and rising employment, 19 out of 20 new jobs are going to FOREIGNERS (the word used in the headlines). So of course, all we have to do is implement immigration controls and those jobs will grow at the same rate (with the UK outside the EU ... ) with OUR PEOPLE (who in the popular press, which includes of course the unspeakable Telegraph and Times, have rather particular characteristics).

I am not sure what these press views are based upon, but my guess is that it is an adolescent mercantilist phantasy. Gather close to ourselves (those who know we are of the same essence) to stop incursion. Build fences (Calais) and walls (Mexico). Treasure our island state. Dream of perfect order. Ensure a Platonic hierarchy of everyone in their proper place (grammar schools will achieve this). Stop prisons being so 'soft' (dear god). Forget the pragmatic alliance with Europe. Stand on principle. Believe in autochthonous powers.

[????]

all very emotive and somewhat amusing etc etc but you are aware that The Times supported Remain I presume jayw?

[TheArtfulDogger]

Just count our blessings that we are in England and not India where demonatarisation has made obsolete around 80% of the rupees in circulation, causing issues for small businesses that rely on cash for daily transactions (fruit and veg sellers on the side of the road for example) and super long slow queues to change the old notes for new ones.

Now that has given the Indian economy a bit of a blip that makes anything we are going through (positive or negative) seem tame ... Just imagine if it happened here with ?20 and ?50 notes!

[DaveR]

"Ensure a Platonic hierarchy of everyone in their proper place"

That's not what Platonic hierarchy means

"Believe in autochthonous powers."

And this doesn't really make sense, or at least it doesn't mean what you evidently think it does.

I've said before that your posts make 'literally no sense', and to be clear I mean that they often do not have any coherent meaning if the words are understood in the conventional way, as opposed to just saying that I disagree (though I generally disagree with what you appear to be saying).

Anyway, there was quite a lot of discussion in the press/media about the reasons for the employment/jobs figures, none of which resembled even vaguely your ridiculous caricature. Regarding the actual subject of the thread, mainstream economists have largely now accepted that they were wrong about the immediate effects of Brexit, but equally warning sensibly that positive figures now just represent relief that the world didn't end, recognition that the UK economy has some fundamental strengths, and a cautious sense that there may be a minimal damage Brexit process that is achievable. Huge uncertainty remains.

[Jenny1]

I wouldn't have expressed it exactly as jaywalker did, and of course I had to look up 'autochtonous', but I do agree with the spirit of what he's saying (in my interpretation). This would be that isolationism is very economically damaging. I'd add my own two pennyworth, which is that globalisation is not new. The Celts traded, and indeed migrated, over great distances. Turning one's back on the rest of the world has never been a route to prosperity.

[Lordship 516]

@DaveR

"mainstream economists have largely now accepted that they were wrong about the immediate effects of Brexit,"

Not so - acceptance that there are lagging factors, including some business decisions on the part of suppliers not to pass on increasing costs for various reasons. Also, the bouyant spending has been accompanied with a significant reduction in trading margins [Next, John Lewis] - traders sacrificing profit for survival in the short term.

"...but equally warning sensibly that positive figures now just represent relief that the world didn't end,"

The positive figures are lagging figures that will progressively change over the coming months/quarters and not likely for the better.

"... recognition that the UK economy has some fundamental strengths,"

Of course the UK has some fundamental strengths but these strengths need to be conserved & supported by sensible economic & political decisions - currently uncertain & unknown with May offering no reasonable advice or direction. The economy is treading water. The only small advantage [short term] advantage is the ?/$ rate that is sustaining exports - for now. This advantage will erode soon as new raw materials purchases will cost up to 20% more. As demand for raw materials will increase, this will impact even more so it a huge challenge for many businesses to keep going let alone make profit. Disadvantaging business by making access to the EU markets difficult/uncertain doesn't make sense by any measure.

"... and a cautious sense that there may be a minimal damage Brexit process that is achievable."

Minimal is wishful thinking. More likely that the impacts aill be significant & long term with the UK having to slog our way back to relative economic health over a long period. Every day that passes without decision/definition is further disadvantaging the UK's position and enables competitors to take advantage & consolidate their respective positions.

"Huge uncertainty remains."

This is for sure and the most/only important part of your post.

[uncleglen]

No-one is turning their backs on the rest of the world- hopefully we are turning our backs on 750 pretty useless and expensive politicians....all they have done is undermine the UK since we joined in 1973-farming, fishing, manufacturing, self-determination - destroyed by the collusion of the quasi socialists in France, Germany, Italy and Belgium in the main....

'People' were bemoaning the fact that Brexiteers had been conned by false information (and it was even said that on the strength of the 'truth' coming out about the implications that many of them wanted to change their vote)- when in fact it is now obvious that the remainers had been lied to by the doom-mongers (obviously with self-serving interests in staying in). How many remaniacs/remoaners would like to change their vote now?

[malumbu]

Thanks for your postings uncleglen. As someone without a business/economics background always useful to hear the other side of the argument. I've been around more than half a century (from relatively humble stock) but don't recognise the Britain that you are talking about from my childhood. It was all pretty grim and black and white from memory. Well you've clearly got some strong views and I am sure that you will be reminding us of it.

But perhaps going back to my childhood there were lots of positives. We wore short trousers irrespective of the weather. We were slapped with a ruler by the teacher for being the slightest bit naughty. We were intolerent of other nationalities, sexual preferences and other beliefs. We were encouraged to throw stones at the 'queer' (odd) kids at school just because nobody knew about (or appreciated) childhood mental health issues and behavioural issues. It was your civil duty to shout 'mong' at anyone who looked slightly weird. Men knew their place in society, and women even more so. Most of us smoked (even as children) and all benefited from the more sociable office, pub and eateries environments. And we had iced buns for treats, and were allowed to spend our bus money on sweets if we walked home. None of this nonsense about health, diet and nutrition. And I still have a few teeth left, some of the front ones don't even have fillings. We had that excellent currency where you had to divide things by 12 or times by 20. Not all this silliness about multiples of ten. Thank God Napolian didn't win.

And we all bought Austin (ie British Leyland) cars as they were made very well locally. It is clearly a clearly a quasi socialist dirty foreigner plot to pretend otherwise. Those bally useless VW golfs. What rubbish.

Ah takes me back.

But there was an unsavoury side to all of this. As kids of 9 or 10, we walked home from school past a chap of around 40, building his own house. He invited us, to ...... show us his bulding work. We'd pop in most days to see how he was getting on. My parents came past one day and thanked him for being so friendly. He didn't even get his John Thomas out once. So not everything about pre-1973 Britain was great.

[jaywalker]

DaveR Wrote:

-------------------------------------------------------

> "Ensure a Platonic hierarchy of everyone in their

> proper place"

>

> That's not what Platonic hierarchy means

> "Believe in autochthonous powers."

>

> And this doesn't really make sense, or at least it

> doesn't mean what you evidently think it does.

The reference to hierarchy is The Republic. The hierarchy of position Plato argues for there is quite insidious I think (the idea that we are born to express already acquired essence and should accept our pre-ordained place once this has been determined). If that is not accurately described as a Platonic hierarchy in the context of my sentence I do not know why and - as ever - you have not said why, just that it means something else (you do not say what).

Why I wonder did the word 'autochthonous' occur to me whilst I was writing that post? Did I look up a word to irritate you (or to try to impress others)? No. Did it occur to me spontaneously in the act of writing? Yes. I was writing about the sense that we are fine to go it alone on the basis of some atavistic myth that the UK population is not a collection of mongrel genes assembled contingently and through migration (how else?) so that we can 'get our country back' and its powers. It seems perfectly reasonable to me to use the word autochthonous here: looking on Google, people use this word in comparable ways: e.g. "autochthonous thought". The dictionary says: "indigenous rather than descended from migrants or colonists" (Google) and that was exactly the sense it had in my sentence, even if the phrase "autochthonous powers" fails your category of 'conventional meaning' (not sure how this is derived).

I guess it will be atavistic next ... I do wonder if, when you say my posts "do not have any coherent meaning if the words are understood in the conventional way" and the repeated use of the criticism "literally makes no sense" imply that you have a slightly rigid view of the process of signification. No word has a fixed meaning, all words are saturated with AND DESTABILISED BY the metonymic and metaphoric associations in the local contexts of their use. To suggest otherwise is simply to try to bureaucratise language to some sense on which we always-already agreed.

[Loz]

Lordship 516 Wrote:

-------------------------------------------------------

> @DaveR

>

> "mainstream economists have largely now accepted

> that they were wrong about the immediate effects

> of Brexit,"

>

> Not so - acceptance that there are lagging factors, including some business decisions on the

> part of suppliers not to pass on increasing costs for various reasons. Also, the bouyant spending

> has been accompanied with a significant reduction in trading margins - traders sacrificing profit

> for survival in the short term.

Agreed. I work in retail now with an mostly imported set of products, some we source through importers/suppliers and some we source directly from overseas. We've managed to hold 99% of our prices to pre-Brexit levels, but we know that is going to change very soon - and big time.

Our importers/suppliers have mostly held their prices through a combination of stock holdings, forward contracts and currency hedging, but all of that will be exhausted soon. We're expecting importers to raise prices in the region of 10% and perhaps more, as everyone is expecting the pound to continue to drop (especially if May stays on course to trigger A50) and they may price to take that potential further drop into account. For goods we import directly we still have some stock that could take us into the new year, but then those prices will then move sharply up as well.

There is talk that VAT may drop in next week's statement by the Chancellor. Personally, I think he has to in order to try an mitigate the massive inflation blip we are facing over the coming months.

[jaywalker]

Very interesting and worrying post Loz. These lagged effects are so dangerous because the government has no good way of reacting to them in a timely way: as we have seen countless times in the past they end up often making things worse (Barber, Healey, Lawson, ...)

It seems to me that cutting VAT is an interesting idea. Presumably this would be reversible on the assumption that the pound has overshot downwards (as it is inclined to do). So when we reach the promised sunlit uplands of true Brexit and the pound rises again, and import prices fall, full rates of VAT could be restored. This would smooth out the inflation path. And smoothing it out is all-important given that inflation tends to be self-fulfilling via wage demands (particularly when you are restricting migrant labour and have printed so much money).

Trouble is that the OBR will point out the contribution this will make to what is already an unsustainable fiscal position. Gilt yields are already rising - I guess they have some way further to go. The BoE could find that it no longer sets interest rates (if it curtails printing cash and the gilt market gets the jitters). And we have huge household indebtedness - so the real economy is at enormous risk from the ensuing rise in interest rates.

[malumbu]

Just to add that my grammer, spelling, and attention to detail will also improve once we leave Europe.

malumbu Wrote:

-------------------------------------------------------

> Thanks for your postings uncleglen. As someone

> without a business/economics background always

> useful to hear the other side of the argument.

> I've been around more than half a century (from

> relatively humble stock) but don't recognise the

> Britain that you are talking about from my

> childhood. It was all pretty grim and black and

> white from memory. Well you've clearly got some

> strong views and I am sure that you will be

> reminding us of it.

>

> But perhaps going back to my childhood there were

> lots of positives. We wore short trousers

> irrespective of the weather. We were slapped with

> a ruler by the teacher for being the slightest bit

> naughty. We were intolerent of other

> nationalities, sexual preferences and other

> beliefs. We were encouraged to throw stones at

> the 'queer' (odd) kids at school just because

> nobody knew about (or appreciated) childhood

> mental health issues and behavioural issues. It

> was your civil duty to shout 'mong' at anyone who

> looked slightly weird. Men knew their place in

> society, and women even more so. Most of us

> smoked (even as children) and all benefited from

> the more sociable office, pub and eateries

> environments. And we had iced buns for treats,

> and were allowed to spend our bus money on sweets

> if we walked home. None of this nonsense about

> health, diet and nutrition. And I still have a few

> teeth left, some of the front ones don't even have

> fillings. We had that excellent currency where

> you had to divide things by 12 or times by 20.

> Not all this silliness about multiples of ten.

> Thank God Napolian didn't win.

>

> And we all bought Austin (ie British Leyland) cars

> as they were made very well locally. It is

> clearly a clearly a quasi socialist dirty

> foreigner plot to pretend otherwise. Those bally

> useless VW golfs. What rubbish.

>

> Ah takes me back.

>

> But there was an unsavoury side to all of this.

> As kids of 9 or 10, we walked home from school

> past a chap of around 40, building his own house.

> He invited us, to ...... show us his bulding work.

> We'd pop in most days to see how he was getting

> on. My parents came past one day and thanked him

> for being so friendly. He didn't even get his

> John Thomas out once. So not everything about

> pre-1973 Britain was great.

[Lordship 516]

The effects of a VAT reduction have been studied & tracked over time.

The reduction in VAT from 20% to 17% is likely to result in consumption increasing by less than 1 per cent by the fourth

quarter following reduction. GDP is likely to be raised raised by less than half a per cent relative to what would have happened without the VAT reduction. After the temporary reduction is over both consumption and GDP are depressed as a result of the policy. This would be a political gimmick and not likely to help in any meaningful manner.

There are also Arbitrage effects & Substitution effects that disadvantage the consumer and the result of a cut in

taxes now will have to be financed by an increase in taxes in the future.

[jaywalker]

I agree it would be a bit of a gimmick, although the effect is presumably more on aggregate supply (if the policy is time consistent it cannot have a significant effect on AD as you say)- the idea in the original post was to smooth the inflation path.

[Lordship 516]

jaywalker Wrote:

-------------------------------------------------------

> I agree it would be a bit of a gimmick, although

> the effect is presumably more on aggregate supply

> (if the policy is time consistent it cannot have a

> significant effect on AD as you say)- the idea in

> the original post was to smooth the inflation

> path.

The possible reduction is not likely to be sufficient to offset the effects of currency induced price inflation which is heading in the direction of 10 to 15% depending on sector so a VAT reduction will mainly result in a theoretical increase in disposable income. The other issues is that not all suppliers will pass the reduction to their buyers - as has happened in the past. The BoE reckoned that only 50% of suppliers passed the reduction to their buyers.

[jaywalker]

a vat cut to zero would offset that :-). but the increase in disposable income is not of any relevance to the post - it would be pre-announced that it would be taken away again later (so only a marginal discounting effect on the perceived time horizon). As to the suppliers, they are not passing all the price increases caused by the sterling fall (even the MNUs, as we have seen) so there is a symmetry with the price falls in the event of a vat cut.

[Lordship 516]

Looking at it in context - VAT takes in roughly ?110billion, the NHS costs roughly 120billion and the NHS needs funding urgently. To indulge themselves in a gesture of VAT reduction of 2-3% would be really a gimmick whilst at the same time denying the NHS the badly needed funding. This is regardless of the theoretical effects of a VAT reduction. It failed in the past & didn't even out over the two periods - temporary reduction period & period following return to normal VAT rate.

There is also an anticipatory effect. For every 1% reduction consumption falls about 0.33% in the quarter immediately before the introduction of the reduction & increases by about 0.33% in the first quarter of the reduced VAT, & increases about 0.15% duing all the other quarters of the reduction. However it then falls considerably on the re-introduction of the higher VaT rate - about -0.5% in the first quarter & levels off at about -0.25% thereafter. This happened, not only in the Uk but also in France, Germany & Spain. You would expect an evening out effect but in fact there was an overall negative effect on consumption. This is why I say it would be a gimmick - unless, of course they drop all VAT to 0% as @jaywalker suggests :)) [& close down the NHS :((

]

[jaywalker]

I am not at all sure why ?120bn or so (or even x5 that) is of any interest in the current situation. We are rushing fast towards the cliff edge (oh dear, did May really say that?) and so borrowing an additional one tenth of our annual income to put the breaks on would seem to be quite a modest proposal (especially at negative real interest rates).