How many more forecasting disasters can the Bank of England create?

After a disappointing inflation figures earlier this week the official releases have returned  to the previous trend for better news.

Retail sales volumes are estimated to have increased by 1.2% in February 2023. This is the largest monthly increase since October 2022 (1.4%), which was affected by the additional bank holiday for the State Funeral of HM The Queen in September.

In fact the numbers were better than they initially looked because we are comparing to an upwardly revised January.

following a rise of 0.9% in January 2023 (revised from a rise of 0.5%);

As to the factors which drove the improvement we can start with this.

Total non-food stores sales volumes (total of department, clothing, household and other non-food stores) rose by 2.4% over the month, following a rise of 1.0% in January 2023.

We can break that down further.

Within non-food, department store sales volumes rose by 5.5% over the month, while clothing stores rose by 2.9%. Growth in both sub-sectors was because of strong sales at discount stores.

The clothing numbers are especially interesting if we recall the inflation numbers from Wednesday.

On a monthly basis, prices rose by 2.5% between January and February 2023, compared with a smaller rise of 0.8% between the same two months a year ago…….However, the 2.5% rise in 2023 is the largest observed between January and February since 2012. The price movements reflect the amount of discounting observed in the datasets.

So sales and inflation surged in the clothing sector? Against my usual theme on the surface but underneath we note that the increased sales were at discount stores so it looks like it is still there. If we had monthly weights for clothing inflation (reflecting actual sales) then presumably it would have been lower.

In fact the high street seems to have had a rare good month with only one sector falling and that only marginally.

Other non-food stores sales volumes rose by 1.7% in February 2023, because of strong growth in second-hand goods stores, such as auction houses and charity shops. Household goods stores sales volumes fell by 0.3% in February 2023.

Food sales were also up.

Food store sales volumes rose by 0.9% in February 2023 following a rise of 0.1% in January 2023.

But fuel fell.

Automotive fuel sales volumes fell by 1.1% in February 2023 following a rise of 1.1% in January 2023 when rail strikes may have increased travel by car.

I am not sure what to make of the fuel figures these days because I notice that so many of the cars that pass me are nearly silent ( as in running ion electric power). So there has been quite a shift but economic reality has moved much less.

Online had a good month too.

Online spending values rose by 2.6% in February 2023, because of monthly increases across all industries except household goods stores.

Where do we stand now?

The situation for 2023 so far looks pretty good but is still not quite enough to offset a poor December.

Looking at the broader picture, sales volumes fell by 0.3% in the three months to February 2023 when compared with the previous three months.

The numbers are being pulled higher though by the improvement as the same numbers was -0.9% in the January report and -5.7% in the grim December one. Next month is likely to look much more positive although care is needed as there will be  boost simple from the December numbers dropping out.

In terms of comparing with pre Covid we are back level on the deal.

The increase over the month to February 2023 returns sales volumes to February 2020 pre-coronavirus (COVID-19) pandemic levels.

As there was a spell we were doing well we must then have hit a rough patch. For me this is one of the costs of the inflationary surge we have experienced as consumers have been forced to cut back.

Despite a second consecutive rise, sales volumes were down 3.5% when compared with the same month a year earlier.

The Bank of England joins the party

We can look at developments via the lens of the Bank of England and its interest-rate rise yesterday. We can quickly see that two of our themes are in play.

Bank staff now expected GDP to increase slightly in the second quarter, compared with the 0.4% decline incorporated in the February Report.

The theme of something of a pick-up is combined with another forecasting fail from the Bank of England. They would have done better to listen to their Agents rather than stare ceaselessly at their economic models.

The Bank’s Agents had reported that, while subdued overall, activity was holding up better than contacts had previously expected, particularly in the consumer services sector.

Indeed they found themselves having to do exactly the same in February.

This forecast is consistent with the technical definition of a
recession, which is at least two consecutive quarters of falling output. But this is a much shallower profile for the decline in output than in the November Report,

What did they say in November?

Following growth of 0.2% in the second quarter, UK GDP is expected to have contracted by 0.5% in 2022 Q3, and is projected to fall by 0.3% in Q4

As you can see they got the end of the year completely wrong in spite of the fact it was already November and they were full of doom and gloom.

GDP is projected to continue to fall throughout 2023 and 2024 H1, as high energy prices and materially tighter financial conditions weigh on spending. In the Committee’s central projection, calendar-year GDP growth is -1½% in 2023 and -1% in 2024.

In essence we can see the improvement in prospects for the UK economy via a succession of Bank of England forecasting failures.


We find that the UK economy has started 2023 reasonably well with retail sales picking up. That theme has continued with this morning’s Purchasing Managers Indices or PMIs.

“With the flash PMI surveys signalling a second month of
rising output in March, the UK economy looks to have
returned to growth in the first quarter. The surveys are
broadly consistent with GDP growing at only a modest
quarterly rate of 0.2%”

Whilst that is nothing spectacular it is very different to the stories the Bank of England and indeed the OBR have been making up. Even the constant stream of revisions has still left them off the pace. In such a situation I think that Governor Bailey is throwing stones from a glass house with comments like this.

“I would say to people who are setting prices – please understand, if we get inflation embedded, interest rates will have to go up further and higher inflation really benefits nobody,” he added. ( BBC)

It seems that he learnt nothing by his intervention on wage rises.

Meanwhile whilst I have sympathy for those who are at the level of functionaries bleating about pay after the performance of the Bank of England is not going to get a lot of sympathy.

More than half of the Bank of England’s staff thought they were not paid fairly before striking their latest remuneration deal, an internal survey obtained by Financial News shows.

Finally there are some extraordinary moves going on in bond markets this morning making me wonder if there is more banking trouble? So tin hats on please everybody.



Where next for interest-rates?

We find ourselves in the middle of a bit of a barrage from central banks on the subject of interest-rates. Yesterday evening the present round of rises was kicked off by the worlds main central bank.

At today’s meeting the Committee raised the target range for the federal funds rate by 1/4 percentage point, bringing the target range to 4-3/4 to 5 percent. And we are continuing the process of significantly reducing our securities holdings.

So as we expected and as normal it was followed by those who have a currency pegged to the US Dollar.

Saudi UAE Qatar Oman Bahrain .. all lifted interest rates by the same size ( @ZiadMDoud )

The Hong Kong Monetary Authority also raised by 0.25% to 5.25%. But as importantly everyone was looking for clues as to what will happen next?

We believe, however, that events in the banking system over the past two weeks are likely to result in tighter
credit conditions for households and businesses, which would in turn affect economic outcomes. ( Federal Reserve)

Which means this.

As a result, we no longer state that we anticipate that ongoing rate increases will be appropriate to quell inflation; instead, we now anticipate that some additional
policy firming may be appropriate.

So will has become “may be”. Also in the press conference we were told  this.

Powell on a pause at today’s meeting: “We did consider that.” ( @NickTimiraos )

If we stay with Nick Timiraos in his role as the press mouthpiece for the Fed we can note this.

Takeaways from the Powell presser/FOMC today:

• Much less conviction about further hikes given what may happening with bank credit. Pay attention to “may” and “some” in the FOMC statement

• A significant minority of FOMC officials (7 of 18) now see inflation risks as balanced

Deposit Insurance

There seems to be some confusion amongst the US authorities. Let us start with the US Federal Reserve.

That is why, in response to these events, the Federal Reserve, working with the Treasury Department and the FDIC, took decisive actions to protect the U.S.
economy and to strengthen public confidence in our banking system. These actions demonstrate
that all depositors’ savings and the banking system are safe.

With the recent words from Treasury Secretary Yellen you might infer that all deposits were now at least implicitly protected. But as the press conference continued we were told this from a different interview.

“I have not considered or discussed anything to do with blanket insurance or guarantees of deposits,” Yellen said. ( Financial Times)

It all rather looked as if the US authorities are making it up as they go along.

Yellen said uninsured deposits above $250,000 could be protected only if a failed bank was deemed to pose a systemic risk to the financial system, as occurred earlier this month with Silicon Valley Bank and Signature Bank. She said that determination would occur only on a case-by-case basis. ( FT )

I was not the only person who felt she had previously given a different impression.

The KBW Bank index, which tracks shares in 24 large and midsized banks, dropped almost 5 per cent, reversing all the gains it made after Yellen’s comments at the bankers’ association on Tuesday. ( FT )

This sort of  confusion only makes a pause and then perhaps even interest-rate cuts more likely. That sort of viiew is confirmed by a metric Chair Powell highlighted a year ago.

The expected three-month T-bill rate dropped to 134 basis points under the current rate. That’s below the previous record nadir it hit in January 2001 — about two months before the US economy fell into recession. ( Bloomberg )

The Swiss

By contrast the Swiss have not been deterred by their own banking crisis.

I come now to our monetary policy decision. We have decided to tighten our monetary policy
further and to raise the SNB policy rate by 0.5 percentage points to 1.5%. In doing so, we are
countering the renewed increase in inflationary pressure.

Actually before this there had been another change.Remember the days when the SNB built up all those  foreign currency assets in an attempt to weaken the Swissy? Well no more.

For some quarters now, we have indicated that in order to ensure appropriate monetary conditions, we would consider selling foreign currency in addition to policy rate increases. In the fourth quarter of 2022, we sold foreign currency worth around CHF 27 billion.

Oh and the crisis at Credit Suisse was all the Americans fault.

The global crisis of confidence rapidly intensified last week due to the turmoil in the US banking industry. From Wednesday onwards, this had a direct impact on Credit Suisse’s liquidity situation as a result of strong outflows of customer deposits and cuts in counterparty

Actually if you look at the chart the share price has been in a clear decline since it was around 13 Swiss Francs in February of 2021.


Next up this morning was the Norges Bank.

Norges Bank’s Monetary Policy and Financial Stability Committee has unanimously decided to raise the policy rate from 2.75 percent to 3 percent.

Whilst central banks try to emphasise differences there is much about the next bit that is generic.

The Committee assesses that a higher policy rate is needed to curb inflation. Inflation is markedly above target. Growth in the Norwegian economy is slowing, but economic activity remains high. The labour market is tight, and wage growth is on the rise.

As is common they omit to point out that real wages have been falling. Less than in many other places as it looks to be at an annual rate of 1.5 to 2% but it is a counterpoint to the claim of a tight labour market.

Also at a time when infllation is well above target surely if you think 3.5% is necessary then you should do it now.

The policy rate forecast has been revised up from the December Report and indicates a rise in the policy rate to around 3.5% in summer.


As you can see there is a fair bit of variation in the response here and it is on several levels. Whilst the US did have higher inflation than Norway it is not so different now but whilst the moves over the past 24 hours are the same there is a 2% difference in interest-rates. That perhaps explains why Norway is keen to emphasise it plans to raise more.

The Swiss seem to be determined to ignore the banking crisis that has arrived upon them. That is pretty extraordinary when you consider the relative size of Credit Suisse and the Swiss economy. It feels like a type of denial although it is true that their inflation trajectory so far has been quite a bit lower than elsewhere.

For my own country the UK then the line of least resistance today for the Bank of England is to match the Federal Reserve and raise by 0.25% to 4.25%. Although I am expecting two dissenters in Dhingra and Tenreyro.

Meanwhile if we lift our eyes from the West things are very different elsewhere as this from Tuesday shows.

In order to continue to influence the stability of prices in the economy and ensure an inflation course in line with the medium-term objectives, we decided in today’s session of the Monetary Policy Committee of the National Bank of Angola (CPM), to reduce:

• A Juro Basic Tax (BNA Tax) from 18% to 17%;

UK Inflation picks up again partly due to Valentines Day

This morning has brought news that will have brought a depressing cloud to the persona of the poor unfortunate research student whose turn it was to present the morning meeting at the Bank of England.

On a monthly basis, CPI rose by 1.1% in February 2023, compared with a rise of 0.8% in February 2022.

This presents several problems all a once. Firstly it is not so easy to claim that Governor Bailey has masterfully slayed the inflation beast when in has risen on a monthly basis. Then any effort at reflection will note that the target of 2 per cent per annum is to say the least unlikely to be achieved any time soon when inflation has just risen by 1.1% in a single month.

We can stay with the 2 percent target theme as out increasingly desperate research student wonders how to put a positive spin on this?

The Consumer Prices Index (CPI) rose by 10.4% in the 12 months to February 2023, up from 10.1% in January.

Just the five times ( and a bit) the annual inflation target then. It is probably not the time to remind the Governor of his words from last July.

Let me be quite clear, there are no ifs or buts in our commitment to the 2% inflation target. That’s our job, and that’s what we will do.

I would imagine that Swati Dhingra will be trying to avoid catching anyone’s eye this morning after claiming this only a week ago.

Inflation is expected to fall sharply over 2023…….Overall, the evidence does not point to persistent cost-push inflation becoming embedded in wages and margins. ……This would avoid overtightening and return the economy sustainably to our 2% inflation target in the medium-term.

Poor old Swati had perhaps thought it was clever to align herself with the Office for Budget Responsibility.

Inflation, which is hitting struggling households hard during the cost-of-living crisis, is expected to plummet from 10.7% last year to 2.9% by the end of the year, according to the Office for Budget Responsibility (OBR). ( ITV News)

A rise of 2.9% in a tear will be not so easy when a single month has risen by 1.1%.

Whilst we are noting the inflation numbers it is also the day the Bank of England will be setting interest-rates so here is the advice from a former policymaker.

David Blanchflower, a member of the Bank’s monetary policy committee during the global financial crisis of 2008, said official borrowing costs should be cut from 4% to 3% at this week’s meeting. ( The Guardian)

Actually Mr.Blanchflower has also put his name to this.

This is getting worrying. I would be voting for 150bp cut at MPC meeting this week..

I am pretty sure he also put his name to a 2% cut as well, but that seems to have been deleted.

What is going on?

One aspect of the monthly rise will be familiar to people as the supply issue with tomatoes was a factor.

Prices overall rose this year by more than a year ago, with the main upward contributions coming from potato crisps, onions and salad vegetables.

That category rose by 3.3% on the month and helped lead to overall food monthly inflation being 2.1%. Actually the other category rose even faster at 3.4% but as it includes sauces I am assuming it was tomato sauce on the rise.

I had noted speculation that the timing of the checking of the numbers this year was likely to be a factor because it coincided with Valentines Day.

The largest upward contribution to the change in the rate between January and February 2023 was from recreational and personal services (almost entirely from catering services), with the annual inflation rate rising from 9.4% to 10.4% between January and February 2023.

Catering services ( restaurants & hotels) were up by 2.1% on a monthly basis so it looks as though the Valentines Day factor was in play.

Also driving things higher was clothing and footwear prices which rose by 2.5% on the month.

On the other side of the ledger we did see a minor drop in motoring costs where fuel fell and was not entirely offset by other costs.

Mortgage Costs

These have been a really big deal over the past year or so and I raised them with the National Statistician just under a fortnight ago. If he was correct in claiming that they are in his headline inflation measures then they should already have been a headline act because they rose by 4.6% in February. It would have been quite an achievement for the CPI measure which ignores owner-occupied housing costs entirely. Also the CPIH measure which claims to include owner-occupied costs uses imputed rents for owner-occupiers. How is that going?

Private rental prices paid by tenants in the UK rose by 4.7% in the 12 months to February 2023, up from 4.4% in the 12 months to January 2023.

As you can see from the official point of view things are going really well as an monthly inflation rate of 4.6% is converted into an annual one of 4.7% which is much more friendly especially when we note that the annual rate of increase of mortgage payments is 49.6%.

This is why over the years I have made the case for the Retail Price Index measure of inflation. Because the RPI deals with housing inflation much more realistically. Rent for those who rent and mortgage costs and house prices for those who own. It is also why it is unpopular with the establishment as it means that it gives a higher number for inflation.

Let me spell this out with today’s numbers.

The all items RPI annual rate is 13.8%, up from 13.4% last month.

Was replaced by.

The Consumer Prices Index (CPI) rose by 10.4% in the 12 months to February 2023, up from 10.1% in January.

From an official point of view they have “gained” over 3% here although of course it is just an illusion.So they had another go.

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 9.2% in the 12 months to February 2023, up from 8.8% in January.

Fortunately people have spotted the latter for the nonsense it is and it has been widely ignored. Amongst its other failings it has made a mess of measuring rental inflation which is a really big deal when via imputed rents it becomes around a quarter of the index. However reality is more like this.

According to property portal, Zoopla, rents across the UK rose at their fastest ever rates throughout 2022 with the average UK rent now 11.5% higher than it was the year previous, ( Beech Holdings)

I know the numbers are from 2022 but there has been a long sequence of other measures and indicators suggesting there has been double-digit inflation in UK rents which the official series has missed.


These days there is even more than usual to think about but let us start with the view of Financial Times editor Chris Giles. from less than a week ago

Amazing that Andrew Bailey has now done 3 years as ⁦

⁩ governor. After lots of conversations, people think he’s done a pretty good job. But often explains himself poorly

Perhaps they forgot about inflation or believed the OBR forecasts.

If we look ahead then there is some hope from one leading indicator.

On a monthly basis, producer input prices decreased by 0.1% and output prices decreased by 0.3% in February 2023.

Also if we look back to the Budget the numbers in April will be pulled lower by the lack of an increase in domestic energy prices this year. So a 1.3% rise ( CPI) and 2.2% rise (RPI) will drop out of the annual numbers.

Later we will find out what the US Federal Reserve thinks and the Bank of England will also vote. I am expecting them to both raise by 0.25% as they will be afraid of the signal that would be sent by not raising interest-rates.

How many “Black Swan” events can the UK Public Finances take?

In these uncertain times I thought that readers might like  a little dose of certainty today.So here it is.

The public sector borrowed £122.1 billion in the financial year ending (FYE) March 2022. This was £5.7 billion less than the £127.8 billion forecast by the Office for Budget Responsibility (OBR) in its Economic and fiscal outlook – March 2022

Yes we can be sure about the first rule of OBR Club that it will always be wrong. Later we will see that it is getting this year wrong too. But before we move on we can see another scare that they created.

cancel next year’s fuel duty super-indexation that would raise petrol prices 6 per cent overnight and be
the first duty increase in 12 years.

In reality the Chancellor was always likely to cancel it.

February’s numbers

The monthly number has a type of double hit. First by its size and then a reminder of the cause.

Public sector net borrowing (PSNB ex) in February 2023 was £16.7 billion, £9.7 billion more than February 2022 and the highest February borrowing since monthly records began in 1993, largely because of substantial spending on energy support schemes.

Actually the official numbers are a little vague about this. The one area that is specified is the Energy Bills Support Scheme where £400 is paid over 6 months.

It is paid in six evenly spread portions between October 2022 and March 2023. This month sees the fifth round of EBSS payments, with £1.9 billion of central government expenditure recorded as a current transfer from government to households.

Frankly one could do that pretty much with a pocket calculator. As to the other forms of energy support we are just given a rough total.

The increase in expenditure on both subsidies and “other” current grants paid by central government in February 2023 compared with a year earlier is estimated to be broadly £9.3 billion. The majority of this is because of new energy support schemes this year. These data are available in Table PSA6E in our Public sector finances tables 1 to 10: Appendix A.

Unfortunately the table referred to is less than helpful and adds little light. This is disappointing considering what a big issue this is at the moment.

We can continue our journey by noting that the suggestion of a strong self-assessment season we noted last month, turned out to be confirmed.

Combining January and February 2023, SA Income Tax receipts have been provisionally estimated at £24.5 billion, £5.0 billion more than in the same period a year earlier and the highest in any equivalent two-month period since records began in April 1999.

Also capital gains tax receipts were strong.

Over the same two-month period, SA Capital Gains Tax receipts (presented within “other taxes on income & wealth” in Tables 2 and 6) have been provisionally estimated at £15.8 billion. This was £3.0 billion more than in the same period a year earlier and the highest in any equivalent two-month period since records began in January 1998.

If we look at the other side of the coin we see some hope on the expenditure side from debt interest.

In February 2023, the interest payable on central government debt was £6.9 billion, £1.3 billion less than February 2022 and significantly lower than the recent peaks observed in June and December 2022.

So it was lower than last year as inflation is not on the tear it was then. Although comparing it with June and December is a little misleading because if you look at the pattern they are always stronger months. A more detailed February breakdown is below.

Of the £6.9 billion interest payable in February 2023, £3.4 billion reflected the impact of inflation on the index-linked gilt stock.

Smokescreen Time

Over the years I have pointed out the various official efforts to make sub-categories which mostly then have the role of providing a smaller borrowing number. So another form of what they try with inflation. The present effort is majoring on this bit.

The public sector current budget deficit can be considered borrowing to fund day-to-day spending, as it excludes the capital expenditure (or net investment) present in the wider net borrowing measure.

Investment is of course magnificent and wonderful or at least that is what we are supposed to believe and it leads to this.

In February 2023:

  • the public sector current budget deficit was £10.0 billion, £7.8 billion more than in February 2022
  • public sector net investment was £6.7 billion, £1.9 billion more than in February 2022

So ministers can mention a much lower number for the current budget deficit and if pressed can reply “the rest is investment” and bathe in the good will created. Og course in reality some of it is useful but some of it will be wasted and some will not really be investment at all as Goodhart’s Law comes into play.

How are we doing overall?

Well the OBR as ever is doing badly whereas we are doing quite a bit better than its doom and gloom effort last November.

In its Economic and fiscal outlook – November 2022, the Office for Budget Responsibility (OBR) estimated that the public sector would borrow £177.0 billion in the financial year ending (FYE) March 2023. This estimate was subsequently reduced by £24.6 billion to £152.4 billion in its Economic and fiscal outlook – March 2023.

Although if we put them to one side ( or perhaps in the recycling bin) we see that we are borrowing more than last year.

This was £15.5 billion more than the same period last year and the third highest financial year-to-February borrowing since monthly records began in 1993.

Although there are a couple of  contexts to this.

In its Economic and fiscal outlook – March 2023, the Office for Budget Responsibility estimate that the combined cost of the energy support schemes across October 2022 to March 2023 will cost £47.0 billion.

Also this.

Debt interest payable increased to £102.6 billion, £33.7 billion (48.8%) more compared with the same period last year, as the rises in the Retail Prices Index (RPI) have increased the interest payable on index-linked gilts.

National Debt

The headline figure is this.

Public sector net debt (PSND ex) at the end of February 2023 was £2,507.3 billion or around 99.2% of gross domestic product (GDP), with the debt-to-GDP ratio at levels last seen in the early 1960s.

Personally I prefer this one as the Term Funding Scheme is not really debt as most would understand it.

PSND excluding the Bank of England was £2,215.7 billion or around 87.7% of GDP, which was £291.5 billion less than the wider measure.

Yes there is a potential liability from the Term Funding Scheme but nothing like its full value and a 10% allowance seems likely to be more than plenty.


Over the years there have been plenty of swerves and spin in these numbers. At the moment we are in a position where they are better than our worst fears essentially because the trajectory for energy prices has improved and has taken economic prospects with it. However we keep having “Black Swan” events for the public finances such that any strategic review has to come to the conclusion that rather than being a Black Swan event they were summarised by  The Belle Stars.

This is the sign of the timesPiece of more to comeThis is the sign of the times

One cleat risk at the minute is more banking trouble. Or in this instance it spreading to the UK. Maybe then the Term Funding Scheme would continue and should be counted in the debt numbers!

Also the last few days and the movement in bond yields has shown us how the cost of debt can move on a sixpence.

Finally there is this nonsense from the Financial Times which is a cleat and present danger.

The public sector leads the way on the Sustainability Transformation

Presumably they do not mean this.

“Positive progress has continued on the next phase of Ajax trials, with the Ministry of Defence today confirming the revised in-service dates and resuming payments to General Dynamics for delivery of the programme.

What a shambles it has been.



The banking crisis of 2023 has its roots in the years of low and negative interest-rates

We have just been through a weekend of frenzied financial activity in Switzerland. It is a country that amongst other things is famous for its banks as up to this weekend it had two globally significant ones or what is now called G-SIBS. These were supposed to be safer or as the Bank for International Settlements put it.

will determine their higher loss absorbency (HLA) requirement.

Credit Suisse did have higher losses but absorbency not so much. Anyway the ECB may well be wondering if it can delete this working paper from October 2020.

Overall, our results provide suggestive evidence that the post-crisis reforms have effectively limited excessive risk taking and reduced funding cost subsidies for G-SIBs

Still at least they stopped calling them Too Big To Fail as there is a rather obvious problem with that today.

Swiss National Bank

We can start the story with the SNB which has announced this.

UBS today announced the takeover of Credit Suisse. This takeover was made possible with the support of the Swiss federal government, the Swiss Financial Market Supervisory Authority FINMA and the Swiss National Bank.

This reminds me of the Talking Heads lyric “now everyone is getting involved” from Girlfriend is Better. If only they had done that when this was all going wrong rather than too late! But we have a clear signal that there has been heavy state involvement. We soon see that there is.

Both banks have unrestricted access to the SNB’s existing facilities, through which they can obtain liquidity from the SNB in accordance with the ‘Guidelines on monetary policy
In addition, and based on the Federal Council’s Emergency Ordinance, Credit Suisse and UBS can obtain a liquidity assistance loan with privileged creditor status in bankruptcy for a total amount of up to CHF 100 billion.

Why offer 100 billion once when you can do it again?

Furthermore, and based on the Federal Council’s Emergency Ordinance, the SNB can grant
Credit Suisse a liquidity assistance loan of up to CHF 100 billion backed by a federal default

It comes with a grand statement.

The substantial provision of liquidity will ensure that both banks have access to the necessary liquidity.

If you are thinking but this is really about solvency then good as I have taught you well.

According to the Economic Times of India there was an extraordinary outburst from the Swiss Finance Minster.

 “I have to state that very clearly. This is no bailout. This is a commercial solution because we have a takeover of UBS – well UBS is taking over Credit Suisse, so this is a commercial solution and not a bailout. We really wanted to avoid a bailout for different reasons”, Karin Keller-Sutter, finance minister of Switzerland said.

According to Inside Paradeplatz it was all the fault of those nasty financial terrorists again

Thomas Jordan.

“On (last) Monday everything was still quiet in Switzerland, only on Tuesday and Wednesday morning there was a dramatic, downward spiraling deterioration.”

Those nasty, uncontrollable markets. It is your fault.

The problem for both of them is simply reality. There have been a succession of problems for Credit Suisse as it got involved in a succession of bad deals. If that had put this blog on their reading list they would have been alert. From October 3rd last year.

Regular readers will be aware that I find the phrase “Never believe anything until it is officially denied” to be extremely useful. It came from variously Otto von Bismarck and Jim Hacker. But the point is that looks awfully like an official denial that Credit Suisse is in trouble.

Swiss voters and taxpayers should be very upset at the behaviour of their central bank and government.

The Deal

The problem for the official rhetoric above comes from the deal itself. Via the Financial Times.

UBS will pay about SFr0.76 a share in its own stock, worth SFr3bn, up from a bid of SFr0.25 earlier on Sunday worth around $1bn that was rejected by the Credit Suisse board. However, the offer remains far below Credit Suisse’s closing price of SFr1.86 on Friday.

There has been an extraordinary amount of value destruction here in an organisation which the SNB was supposed to be especially closely supervising.Oh and there is more.

Under the terms of the deal, some SFr16bn of Credit Suisse’s Additional Tier 1 capital bonds, which are designed to take losses when institutions run into trouble and to transfer the risk of a bank failure from taxpayers to investors, are being wiped out.

The buyer which is one of my former employers has had better days too.


This is a pretty complete disaster for Switzerland as a brand.

Worldwide Impact

It seems that there were genuine fears that this song may return to the upper reaches of the financial markets charts.

I need a dollar dollar,

a dollar is what I need
Well I need a dollar dollar,
a dollar is what I need ( Aloe Blacc )

So the Federal Reserve announced this.

The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank are today announcing a coordinated action to enhance the provision of liquidity via the standing U.S. dollar liquidity swap line arrangements.

To improve the swap lines’ effectiveness in providing U.S. dollar funding, the central banks currently offering U.S. dollar operations have agreed to increase the frequency of 7-day maturity operations from weekly to daily.

Actually the main move has been a “Safe Haven” move towards the Japanese Yen which initially strengthened through 131 to the US Dollar. There is a particular irony in things moving in the favour of the Bank of Japan when Japanese banks would be on the list of ones to look at more closely.

Bond Yields

These have fallen again as central banks move from rhetoric about being doughty inflation fighters to getting US Dollar swap lines ready. As to the policy meetings this week there is this.


Care is always needed with the public utterances of The Vampire Squid as it often treats people as “Muppets”. But there is a point here. Central bankers will be getting lots of reports about the state of their banks.

The symbolic move this morning was when the ten-year yield of Germany dipped below 2% only a few days after the ECB raised its Deposit Rate to 3%

US Banks

In the melee we should not forget the issues with the US regional banks of which First Republic is presently the headline act. From CNBC.

Shares of First Republic Bank, which have become the barometer of the regional bank crisis, slid once again Monday after Standard & Poor’s cut the credit rating of the San Francisco-based institution……


The stock fell 15% in premarket trading Monday, adding to a decline of more than 80% already this month that came as the collapse of Silicon Valley Bank caused investors to rethink other banks with large uninsured deposit bases.

Are those deposit bases uninsured? As I pointed out last week the Federal Reserve may have opened its own equivalent of Pandora’s Box by fully insuring depositors at Silicon Valley Bank.


Over the past decade I have regularly warned about the dangers of low and indeed negative interest-rates and bond yields. That was met by a barrage of official rhetoric that this time is different along the lines of the ECB paper I quoted from earlier. Now we see that not only do leopards not change their spots but the bank which has collapsed comes from the country which imposed a -0.75% interest-rate for some years.

Also the central bankers made two other fundamental mistakes. Firstly in denying the pick-up in inflation with their claims of it being “Transitory”, Then boasting about their rapid action when they were forced to act.

the FOMC has continued to tighten the stance of monetary policy, raising interest rates by 4-1/2 percentage points over the past year.  ( Chair Powell to Congress earlier this month)

In a way he was right about this bit.

We are seeing the effects of our policy actions on demand in the most interest-sensitive sectors of the economy.

All those years of low interest-rates to save the banks were summed uprather well by Britney.

Taste of your lips, I’m on a rideYou’re toxic, I’m slippin’ underWith a taste of a poison paradiseI’m addicted to youDon’t you know that you’re toxic?




It did not take the central banks long to return to boosting their balance sheets and the money supply

It has been quite a week with what looked like being the main event ( US CPI inflation) being rather shuffled down the pecking order. In fact right at this very moment we have seen yet another signal and it comes from the East.

the People’s Bank of China decided to reduce the deposits of financial institutions on March 27, 2023. The reserve ratio reduction is 0.25 percentage points (excluding financial institutions that have implemented a 5% deposit reserve ratio). After this reduction, the weighted average deposit reserve ratio of financial institutions is about 7.6%.

So China is acting to raise the supply of broad money as it hopes this will encourage their banks to lend. That is exactly the opposite of what happened in Europe yesterday.

Summing up, inflation is projected to remain too high for too long. Therefore, the Governing Council today decided to increase the three key ECB interest rates by 50 basis points, in line with our determination to ensure the timely return of inflation to our two per cent medium-term target.  ( ECB)

Actually there is a more literal divergence as we note that the ECB is now acting to reduce the money supply by selling some of the bonds it owns.

The decline will amount to €15 billion per month on average until the end of June 2023 and its subsequent pace will be determined over time.

Federal Reserve

Actually it is not only the Chinese who have been expanding the money supply this week.

NEW: Borrowing at the Fed this week

+$148.3 billion – net discount window borrowing

+$11.9 billion – the new Bank Term Funding Program Subtotal: $160.2 billion

+$142.8 billion – borrowing for banks seized by FDIC

Total: $303 billion ( @NickTimiraos )

Indeed some argue that more is on its way.

Market observers are on alert to find out just how much extra funding the Federal Reserve’s new bank backstop program will ultimately add into the system, with analysts at JPMorgan Chase & Co. positing that it could inject anywhere up to $2 trillion in liquidity. ( Bloomberg)

Care is needed as some on social media are already claiming that US $2 trillion has been added when it is much more accurate to say that a potential liability has been added.

The analysts’ prediction based on the amount of uninsured deposits at six US banks that have the highest ratio of uninsured deposits over total deposits is closer to $460 billion.  ( Bloomberg)

What has happened here was the Federal Reserve backstopping uninsured deposits ( above the FDIC limit of US $250,000) at Silicon Valley Bank and the others which have recently failed. So the implication is that they will have to do the same in future at other banks.

In a tough week in many ways it looks like my theme of “The Precious! The Precious!” is back in full force as the banks just got enormous backing from the US taxpayer via the US Treasury for nothing. The analysts seem to have more faith in the biggest US banks than I do. or perhaps they work for them.

While the largest banks are unlikely to tap the program, the maximum usage envisaged for the facility is close to $2 trillion, which is the par amount of bonds held by US banks outside the five biggest, they said. ( Bloomberg)

The UK

I did not think this through thoroughly at the time but the Bank of England has made the same implied guarantee.

The Bank and HMT can confirm that all depositors’ money with SVBUK is safe and secure as a result of this transaction. SVBUK’s business will continue to be operated normally by SVBUK. All services will continue to operate as normal and customers should not notice any changes.

For those unaware of the situation deposits with a bank are formally guaranteed by the FSCS compensation scheme up to a limit of £85,000. I do recall an occasion where that was applied ( to a small building society if I remember correctly) so there was a clear change of policy here and of course it will be demanded next time.


At the moment the Swiss look to be most exposed as a relatively small country with a large bank that is already in trouble. We looked at the current risk only yesterday.

Credit Suisse plans to borrow up to SFr50bn ($54bn) from the Swiss central bank and buy back about $3bn of its debt, in an attempt to boost its liquidity and calm investors a day after the bank’s share price plummeted. ( Financial Times)

We do not know how much of this will be drawn down by Credit Suisse? Although we do know that as it is cheap there is an incentive to do so and that things usually turn out to be worse than claimed. I have pointed out before that bad news from banks is released in penny packets rather than telling the full truth. It seems investors are thinking along the same lines because as I type this the share price has fallen to 1.95 Swiss Francs. Only last week that would have been considered to be a disaster and remember it has a ready supply of cash to tap at the Swiss National Bank.

Although some look at the supply of cash in another way.

Credit Suisse, a bank that lost $7.8 billion last year, is being rescued by a bank that lost $143 billion last year. Gotta love the banking system. ( @GRDecter )


It has been an extraordinary as we note that central banks are back to singing along with Elvis Costello.

Pump it up) When you don’t really need it
(Pump it up) Until you can feel it

Sometimes the most significant decisions come away from the monetary policy spotlight. Here their financial stability counterparts have caught them in something of a spider’s web. There is an added nuance though that many of them are the same people.

If we retiurn to the Chinese move this morning it comes with some rather grand ambition and rhetoric.

The function is to maintain an appropriate amount of money and credit and a stable pace, maintain a reasonable and sufficient liquidity, keep the growth rate of the money supply and social financing scale basically matching the nominal economic growth rate, better support key areas and weak links, and avoid flooding Flood irrigation, taking into account internal and external balance, and strive to promote high-quality economic development.

By flood they mean not over expand the money supply rather than literally. Also we know that the growth target has been lowered so surely money supply growth is enough? In reality I think we see another of our themes in play that the Chinese property sector continues to need help.

Meanwhile the ECB in a show of bravado or maybe to avoid too much embarrassment for its President has just raised interest-rates by 0.5%. But investors are not convinced as the two-year yield of Germany is only 2.59%.

The ECB is learning the hard way that precommitting on interest-rates is a mistake

Today the focus is on Europe and the Euro area. In some ways that is quite an achievement in a week which has seen several US banks fail. But we can look at things via the Two Worlds Collide theme of INXS as we wonder how this.

 In view of the underlying inflation pressures, we intend to raise interest rates by another 50 basis points at our next monetary policy meeting in March and we will then evaluate the subsequent path of our monetary policy. ( ECB President Lagarde)

Goes with this?

Credit Suisse plans to borrow up to SFr50bn ($54bn) from the Swiss central bank and buy back about $3bn of its debt, in an attempt to boost its liquidity and calm investors a day after the bank’s share price plummeted. ( Financial Times)

Whilst Credit Suisse is of course under Swiss jurisdiction and getting liquidity support from the Swiss National Bank it is both large ( or rather it was large) and is closely linked to its European peers. The history of bank problems is that liquidity support is only a temporary panacea as the underlying issue is invariably solvency which it only marginally helps. I have been pointing this out on social media because to my mind the 40% rally in the Credit Suisse share price at the opening looks like a classic DCB ( Dead Cat Bounce) because the real issue here is fear and sooner or later investors will get around to the idea that if 50 billion Swiss Francs are needed there must be a big problem.

If we look at Euro area banks we see that Deutsche Bank is only up 1% at 9.7 Euros as I type this. A real change would have led to a fair bit more. Overnight the ECB will have been busy checking Euro area banks exposure to Credit Suisse as well as their own risks. Maybe they are mulling the words of Christine Lagarde from the last policy meeting press conference.

We are hearing the banks, and we have good dialogues with the banks on impacts that all our measures have. Our measures have impact on interest rates, as well, in a different direction. We are attentive to that, and, of course, we are attentive to financial stability, and this is something that comes into the decision-making process that we follow.

But at that point she had put on her inflation is no longer a hump coat.

But our objective is to reduce inflation. Not just to reduce inflation; to drive it down to 2% in the medium-term.

Although she does seem to have been right about this bit.

So there will be consequences.

In ordinary times a banking crisis like this might lead to an interest-rate cut. That would be especially awkward right now.

Reducing the balance sheet

It has not only been in the arena of interest-rates that financial conditions have been tightened by the ECB.

The Governing Council today also decided on the modalities for reducing the Eurosystem’s holdings of securities under the asset purchase programme (APP). As communicated in December, the APP portfolio will decline by €15 billion per month on average from the beginning of March until the end of June 2023,

That is a bit like when we are told in the film Airplane ” I choose the wrong day to give up sniffing glue”. But there has been more.

Liquidity figures overall would look very bleak across European banks if they would have to repay all of their TLTROs today. As such one of the most interesting themes going forward will be whether the ECB can allow TLTROs to totally roll over? ( SirOfFinance)

This is one of the unintended effects which happen if you are involved in so many areas. If you give backs so much cash/liquidity as the ECB did with the TLRTOs then they come to depend on it. So if you start to change the terms to discourage this as the ECB did last year you apply pressure to the banks. It is put simply below.

TLTRO repayments had a huge effect on banks’ liquid assets ( @JanMusschoot )

That has turned out to be a Baldrick style cunning plan as banks have been under other pressures.

So watch the under card later as the ECB will no doubt be tempted to offer something to The Precious.

The economy

This is really rather awkward as there have been times when this was enough for an interest-rate cut rather than a rise.

GDP growth in the euro area and the EU: In the fourth quarter of 2022, seasonally adjusted GDP remained stable in the euro area  ( Eurostat )

Especially if we add in this.

Annual growth rate of narrower monetary aggregate M1, comprising currency in circulation and overnight deposits, decreased to -0.7% in January from 0.6% in December ( ECB)

The outright sales of past QE bond purchases should over time make the money supply numbers even weaker.

On the other side of the coin there is of course the inflation numbers.

Euro area annual inflation is expected to be 8.5% in February 2023, down from 8.6% in January according to a flash estimate from Eurostat, the statistical office of the European Union.

That rather contrasts with the present Deposit Rate of 2.5%. Also if we look at the national breakdown we see that the claims of economic convergence seem to be still taking their time. Belgium has an annual inflation rate of 5.5% but Latvia has one of 20.1%. That males a common interest-rate sound rather like this from The Lord of the Rings.

“One Ring to rule them all, One Ring to find them, One Ring to bring them all and in the darkness bind them”


We arrive at a situation where pretty much everything is in play. Not an interest-rate cut as that would be too embarrassing and also would show that they are in a state of panic. Let us look at the other choices.

Unchanged or in central banking speak a pause. The problem with this is that whilst in objective terms it stops things getting worse for the banks it comes with the implicit admittal that something is very wrong.

A 0.25% increase in interest-rates. This has the advantage of being a compromise but to my mind is perhaps the worst choice. With inflation so high raising by 0.25% is like trying to stop a tank with a peashooter and with banks plainly in trouble may push them under water anyway.

A 0.5% increase in interest-rates. This has the advantage of being what was promised and by raising interest-rates to 3% might genuinely help with inflation. The problem is that if banks are struggling another tightening might be too much.

So all of the choices are flawed. Much of this is simply caused by the fact that they raised interest-rates too late as they behaved like ostriches and said that inflation was only a “hump”. Now as they have rushed to try and catch up they have upset the banking system. Even President Lagarde may realise that it is no longer wise to boast about this.

This is why the Governing Council started a process of policy normalisation in December 2021 and raised the ECB interest rates by 300 basis points since July 2022.

To be fair she should be well equipped to deal with a disaster because she has so much experience of them. I note this week the same Argentina that she declared to be a success saw inflation rise over 100% and of course what she called “shock and awe” for Greece collapsed its economy.

The truth is that the right answer for today’s move will have been decided by what the ECB found out as it went around the banks last night. So let me leave you with three thoughts.

We were right when in previous years we suggested that the Euro area would struggle when interest-rates rose.

What happens next depends on that most intangible of things which is confidence.

There is a reason why central banks in the past chose not to pre commit on interest-rates.

The UK Budget seems to have forgotten the “Fiscal Black Hole” of only a few months ago

This morning we have the opportunity to take a look at the UK Budget. This is because so much of it has been released in the press. This sort of thing was described by quite a few parts of the media as awful when they suspected something like this might have happened last autumn. But they seem silent so far today. The same issue arises which is what I call the “Early Wire” or what George Orwell called some animals are more equal than others.

We can start with something we on here have been expecting for some weeks now.

New – the Energy Price Guarantee will remain at £2,500 a year for a typical household until the end of June. With energy bills set to fall from July, this change will bridge the gap, easing the pressure on families. ( @HMTreasury )

This has various beneficial effects of which the first is that an extra £500 a year will not go onto electricity bills as the previous plan was to raise the cap to £3000. It is the first example today of something Chancellor Hunt got wrong and there are plenty of others. But for now let us stick with the idea of this being an improvement in the trajectory of the cost of living crisis. If we look at the forecasts of Cornwall Insight the latter part of the year is now likely to be around £2100 per year. So the annual inflation figures will fall heavily in April as last year’s rises ( 1.27% for CPIH and 2.21% for the RPI) fall out of the comparison. Then in July we should see an actual fall of the order of the equivalent of £400 per year.

So this is all round good news with the caveat that with the expiry of the £67 per month energy bill subsidy whilst we will be better off than we would have been an actual improvement will come later.

The Woeful Performance of the Office for Budget Responsibility

The first rule of OBR Club is that the OBR is always wrong. That has been my mantra for many years and contrasted with the way that the UK media lauded it last autumn and said we should stick like glue to its forecasts. How is that going?

Here is the economics editor of the Financial Times Chris Giles and remember this is only from mid November.

Hunt will shortly receive forecasts from the OBR revealing how big the hole is due to be when he wants to meet his main fiscal rule — most likely in 2027-28.
This figure is thought to be somewhere between £30bn and £40bn. On top of this figure, Hunt is expected to add so-called fiscal headroom of between £10bn to £15bn.

Chris loved to proclaim a Black Hole of the order of £55 billion. In fact he also went as high as £70 billion and called it “breathtaking” This completely ignored the fact that it was based on numbers from an organisation which is always wrong! In fact as I pointed out when looking at the Public Finances release on the 21st of January such analysis has collapsed.

In the financial year-to-January 2023, the public sector borrowed £116.9 billion, which was £7.0 billion more than in the same period last year but £30.6 billion less than forecast by the OBR 

There is another factor in this because the MSM of which Chris Giles was a clear example launched an attack on the pro growth policies of Chancellor Kwarteng. Now what does he claim?

The UK has gone from the best performing economy in the G7 to an also ran. Why has this happened? ( @ChrisGiles_ )

So we now need the growth we did not need last autumn? Oh and by the way please do not complain to me about the chart which jumps from 27 years, 3 years, 6 years,and then 6 years.

There is of course a nuance to this in that Chancellor Kwarteng was arrogant in offering better terms for bankers bonuses and tried to do too much at once. But it seems that Chris now thinks he had a point although he does not put it like that. Actually so does the new Chancellor.

Building on the stability we gained from my Autumn Statement, I will set out the next steps to drive economic growth across the UK.

So we will drive economic growth with a 6% rise in Corporation Tax will we? We have already seen a decline in energy investment in the North Sea due to his windfall taxes which have been a disaster.

Let me now give you an announcement which proves my point. If the fiscal black hole so loudly proclaimed a few short months ago actually existed how can we afford this too?

UK Chancellor of the Exchequer Jeremy Hunt plans to unveil a multibillion-pound expansion of free child care in his budget as part of a package of measures to boost growth and help families weather the cost-of-living crisis, a senior official said. ( Bloomberg)

So he is splashing the cash and acting like the Easter Bunny which completely contradicts his rhetoric of only a few months ago.

Don’t fall for the spin

Suddenly the Financial Times is saying this is a Budget for economic growth.

Hunt will claim that he can deliver growth by “removing the obstacles that stop businesses investing, tackling the labour shortages that stop them recruiting, breaking down the barriers that stop people working and harnessing British ingenuity to make us a science and tech superpower”.

Probably the biggest obstacle to business investing in the UK is this announced by some fellow called Jeremy Hunt.

The government has today, Friday 14 October, announced that Corporation Tax will increase to 25% from April 2023 as already legislated for, raising around £18 billion a year and acting as a down payment on its full Medium-Term Fiscal Plan.

That medium-term fiscal plan has not even reached March without looking to be as Imagination would out it.

Could it be that… it’s just an illusion?Putting me back in all this confusion?Could it be that. it’s just an illusion, now?Could it be that… it’s just an illusion?


We should welcome the fact that things are turning out to be more bright for the UK economy as we have seen in the latest GDP and hours worked figures. A lot of this is simply the improved trajectory for energy prices. But this brings me to my fundamental point which is that forecasts by bodies like the OBR are subjective and affected by their biases as opposed to the objective way they are spun in the media. In fact these sort of bodies are awful at forecasting as this from the Bank of England from November shows.

GDP is expected to decline by around ¾% during 2022 H2

In fact it only fell by 0.2%.

GDP is projected to
continue to fall throughout 2023 and 2024 H1,

It grew by 0.3% in January.

Moving on it looks like this week’s banking crisis is deepening. For example shares in BNP Paribas have been halted at 8% down and shareholders in Credit Suisse wish that has happened to them. As no sooner had I pointed out it was below Swiss Francs than it has dropped to 1.81. So as Hill Street Blues used to say.

Let’s be careful out there.

But this new banking crisis reinforces my point that there is much more uncertainty around than these official bodies like to say. Add in their pretty obvious biases and it is clear that following them is a bad idea. But the media do and it sets the wrong tone for any economic debate. As my tutor at the LSE Willem Buiter once observed.

I may not know much, but at least I know that….



The UK Labour Market continues the recent theme of economic recovery

After the excitement of yesterday we can return to some news from the real economy as opposed to the financial one/ The UK economy As we mull the problems of the banking sector we can at least note some improved news from one measure of employment.

In the latest three-month period, total actual weekly hours worked increased by 7.3 million hours to 1.04 billion hours in November 2022 to January 2023.

That coincides with the other signals of an improving situation we have seen such as the 0.3% GDP growth for January. Putting it another way we have regained the levels of last summer after the autumn and early winter drift lower.

Adding to that comes the improvement in payrolls.

The timeliest estimate of payrolled employees for February 2023 shows another monthly increase, up 98,000 on the revised January 2023 figures, to 30.0 million.

However whilst this is welcome it excludes the self-employed so we need to look wider. However these numbers also got better.

The UK employment rate was estimated at 75.7% in November 2022 to January 2023, 0.1 percentage points higher than the previous three-month period. The increase in employment over the latest three-month period was driven by part-time employees and self-employed workers.

That does seemingly fit with the hours worked numbers which told us this.

The increase in the latest three-month period was largely among women,

Another positive message was to be found here.

In December 2022, workforce jobs rose by 211,000 on the quarter to a new record high of 36.4 million, with 6 of the 20 industry sectors at record high levels.


The problem with the numbers above is that we have failed to regain the pre Covid position. For hours worked it is a relatively minor difference.

This is still 9.5 million hours below pre-coronavirus pandemic levels (December 2019 to February 2020).

Without the strike number below presumably we would have been closer.

There were 220,000 working days lost because of labour disputes in January 2023, down from 822,000 in December 2022.

But the employment figures are still quite a distance from where they were.

The UK employment rate was estimated at 75.7%, 0.1 percentage points higher than the previous three-month period and 0.8 percentage points lower than before the pandemic (December 2019 to February 2020).

At the worst levels some 900.000 or so jobs were lost due to the pandemic. As we have recovered we have seen a switch from self-employed to employed work. We have 719,192 more workers employed full-time but have lost 688,024 of their self-employed equivalents. These roughly match out meaning that the overall loss has been part-time employed ( 220,776) and self-employed ( 13,991). Actually the part-time numbers for the self-employed have been improving so we may soon be left with the loss of the part-time employed jobs.

Returning to the overall self-employment decline some of it may be benign in the attraction of sick pay after a pandemic. But there were also legal and rule changes in play.


Here the situation is much less satisfactory although the story starts pretty well.

Growth in average total pay (including bonuses) was 5.7% and growth in regular pay (excluding bonuses) was 6.5% among employees in November 2022 to January 2023.

Perhaps someone was being rather prescient if we look at the present turmoil. Although if they were that prescient there would be no bankers bonuses at all.

Total pay growth remained smaller than regular pay growth in November 2022 to January 2023 because of bonuses, in particular for December, where we saw a higher than normal bonus paid out in 2021, compared with the December 2022 bonus, which remained at a similar level to that of previous months, the main contributor to this was the finance and business services sector.

The numbers continue to be weaker for the public-sector although it is catching up.

Average regular pay growth was 7.0% for the private sector in November 2022 to January 2023, and 4.8% for the public sector,

If we look further at the breakdown we see that bankers seem to have negotiated better regular pay deals. That was probably wise as we see 2023 unfold.

In November 2022 to January 2023, the finance and business services sector saw the largest regular growth rate at 7.7%, followed by the construction sector at 5.8%

But whilst in isolation the wages numbers are good the reality is that they are way behind inflation.

Using CPI real earnings, in November 2022 to January 2023, total pay fell by 4.4% on the year. A larger fall on the year was last seen in February to April 2009 when it fell by 4.5%. Regular pay fell by 3.5% on the year. This is slightly smaller than the record fall we saw in April to June 2022 (4.1%), but still remains among the largest falls we have seen since comparable records began in 2001.

You may note the use of the CPI inflation measure which follows an increasingly desperate attempt as show below.

Our recommended measure of inflation is CPIH.

But for the matter being so serious I would say that CPIH is a comedy effort. To put it more precisely I pointed out at the Royal Society last week that according to official figures mortgage costs have risen by 61% over the past year so why are they not in the official inflation numbers? As opposed to the 4% or so used by rental equivalence.

Anyway the omission of the nonsense effort at housing costs means that whilst theoretically inferior the CPI measure is working better in practical terms. For newer readers my personal view is that real wages are falling at an annual rate of between 4% and 5%.


There was a change here and again it was hard not to have a wry smile. Why? Well just as the chattering classes have caught onto the Bank of England rhetoric in this area we saw this.

The economic inactivity rate decreased by 0.2 percentage points on the quarter, to 21.3% in November 2022 to January 2023. The decrease in economic inactivity during the latest three-month period was driven by people aged 16 to 24 years.

In recent months the situation has been improving although there are still worries about the numbers of long-term sick. Actually if my circle of friends is any guide then we would be locked down again if we were in 2020 or 21 as what is technically known as “the lurgy” seems to be currently doing the rounds.


The economic situation is at the moment mostly about energy and its price. As the trajectory has improved we see that both economic growth and the labour market have responded. There is of course an irony in us seeing a banking crisis but even that can have benefits.



YIELD 3.495%


TAIL 0.4 BPS ( @financialjuice)

The UK taxpayer has sold some bonds more much expensively this morning that would have seemed possible only a week ago. Also the Bank of England sold some £650 million of its QE holdings on similar terms yesterday.

But if we step back and look at the labour market over the past decade or 2 there is a clear issue which is that we keep experiencing real wage shocks. There has been an establishment effort to cover it up via the manipulated inflation figures but as Scully and Mulder used to say “the truth is out there”


What is the fallout from the failures of Silicon Valley Bank and Signature Bank?

We began the weekend with the US Federal Reserve on full alert to find out the extent of the current problems for the US banking system. There were elements of a bank run in play as there were some depositor queues and shares related to Silicon Valley Bank told a pounding, after trading in its shares was halted. Indeed we can start with an element of that became this on Friday.

People lining up to pull money out of First Republic Bank in Brentwood, LA this weekend. Wealthy neighbourhood with many uninsured accounts over $250,000. The banks stock is down 33% in the last week. ( @GRDecter )

Yesterday it tried to take action.

March 12 (Reuters) – U.S. private bank First Republic Bank (FRC.N) said on Sunday it had secured additional financing through JPMorgan Chase & Co (JPM.N), giving it access to a total of $70 billion in funds through various sources.

As an aside JP Morgan seems to be involved in a few places here. But as we start the week well you can see for yourself.

Shares in First Republic Bank fall 60% in premarket trading, as another California bank faces concerns about its financial strength ( Bloomberg)

Apparently US $70 billion isn’t what it used to be….

Along the way we have also seen this.

We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority.  ( US Treasury & Federal Reserve)

So as Queen would say.

Another one bites the dustAnother one bites the dustAnd another one gone and another one gone

This brings another factor which is contagion and fear of contagion which will be pressurising banks linked to both SVB and Signature. Banks which otherwise might have got through this will now also be signing along with Queen.

Pressure pushin’ down on mePressin’ down on you, no man ask forUnder pressure that brings a building down

We have seen that with First Republic which was US $147 in February as opposed to the US $40 as I type this.

The Federal Reserve

I have quite a bit of sympathy for junior staff being dispatched to troubled banks but none at all for those in charge as they have been asleep at the wheel. Just look at this.

The CEO of Silicon Valley Bank was also on the board of directors at the Federal Reserve Bank of San Francisco. ( @GRDecter )

We will be hearing about ut being necessary for large depositors to do due diligence on a bank when the Federal Reserve was unable to do it on a board member.

As to the action well the deposit limit of US $250,000 has been scrapped for now.

Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer…..

You may be wondering how they are so sure the taxpayer will not lose money? Regular readers may recall my timeline for a banking collapse where such phrases are followed by “unexpected” losses “which could not possibly have been predicted except by a few financial terrorists”.

For now the losses are passed to this.

Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.

The problem is if the weaker banks are put into trouble by acquiring losses from the ones which have already failed.

Also there is a problem with this and I have highlighted the issue here.

The additional funding will be made available through the creation of a new Bank Term Funding Program (BTFP), offering loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. These assets will be valued at par. 

If they were worth par then SVB and Signature Bank would still be with us so they are suspending reality for a year.  Even with this they feel the need for the US Treasury to be on hand.

With approval of the Treasury Secretary, the Department of the Treasury will make available up to $25 billion from the Exchange Stabilization Fund as a backstop for the BTFP.

In fact they have asked for it on the grounds they will not need it. Er……

The Federal Reserve does not anticipate that it will be necessary to draw on these backstop funds.

In a year’s time there may well be a quiet announcement after all less than a week ago we were told this by Chair Jerome Powell.

Last week Fed Chair Jerome Powell said he saw no risk to banks from rising interest rates. ( @rektmando)

As he cannot see a few days ahead I would not be worrying too much about promises a year ahead.

Interest Rates

In a nutshell these have been the problem in another version of the borrow short lend long problem. Banks have had to pay higher interest-rates on deposits as Chair Powell and his colleagues raised interest-rates but having invested in Treasury Bonds for example they locked themselves in at or near to the lows. Not only a yield or carry loss but a market one as something you have bought at say 130 trades at 110.

This has really changed views on future interest-rate rises.

What a difference one #bankrun makes! Last week, markets reflected a 0.5% chance the #FederalReserve Target Rate would peak at 6.50%. Now there is less than 8% chance we get to 5.50%. ( @jsblokland)

Putting it another way the US two-year yield which went above 5% last week ( 5.07%) in response to the rhetoric of Chair Powell is now at 4.3% leaving him in a bit of a mess.From last Thursday.

As I mentioned, the latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated.

Did his words push things over the edge? He has a lot to think about right now.

We have seen similar moves across much of the world. My home country the UK has seen its ten-year yield fall below 3.5% this morning. Germany has seen its fall to below 2.3%. Meanwhile whilst I am discussing people making themselves hostages to fortune there is this.

In view of the underlying inflation pressures, we intend to raise interest rates by another 50 basis points at our next monetary policy meeting in March and we will then evaluate the subsequent path of our monetary policy.  ( ECB President Lagarde)



We are finding out in practice one of the ways that the QE bond buying era and zero interest-rates were so bad. Ironically the central bankers made it worse by dithering over interest-rate rises so that when they acted in a rush a sort of tsunami has hit some banks and toppled them. I warned about this many times as banks and funds were effectively forced to buy bonds at the top of the market. We have seen trouble in the UK for pension funds and now in the US for banks with opposite immediate impact as in the UK yields rose but in the US falls.

Also we see that the regulators have not only been asleep at the wheel again, they seem unable to even select competent staff. How was someone from SVB on the board of the San Francisco Fed? Plus the interest-rate rises from the central bankers has created work down the corridor.

Next up is the denial that this is a bailout. It is true that share and bond holders will be wiped out. Also management removed. But we are also seeing that depositors of any size are being bailed out.Plus should this continue to spread the US taxpayer will be required to help out.

Now we wait to see what happens next?

We’re just waitingFor the Hammer To Fall ( Qyeen)

After all if someone listened to Chair Powell and hedged their Treasury Bond position they now will have large mark to market losses on the hedge.