Tomorrow the United Kingdom goes to the polls for a General Election. Yesterday’s anniversary of the D-Day invasion of Normandy in France reminded us that the ability to vote is a valuable thing that people have fought and died for. Let me repeat my usual recommendation to vote albeit with the realisation that as far as I can see it has been an insipid and uninspiring campaign. Time for “none of the above” to be on the ballot box I think.
Moving to economics there have been a couple of reminders over the past 24 hours that some themes remain the same. From BBC News.
RBS has finally reached a £200m settlement with investors who say they were duped into handing £12bn to the bank during the financial crisis.
The RBS Shareholders Action Group has voted to accept a 82p a share offer.
The amount is below the 200p-230p a share that investors paid during the fundraising in 2008, when they say RBS lied about its financial health.
If you look at the sums you see that the compensation is nowhere near the problem if you feel that there was a misrepresentation back then. Also as there was a 1:10 stock split back in 2012 is this not really an 8.2p offer? As to the theme of there being no punishment for bank directors there is also this.
A settlement means that the disgraced former chief executive of RBS, Fred Goodwin, will not appear in court.
Of course the UK is not alone in such machinations as I note this from Spain today. From Bloomberg.
The purchase price was 1 euro, according to the statement.
Santander plans to raise about 7 billion euros ($7.9 billion) of capital as part of the transaction. ( Bloomberg ).
That much? The situation has been summed up rather well in a reply to the article.
Santander could be buying a time bomb filled with bad debt. What is the CEO thinking? Why should
$SAN shareholders bail out Popular?! ( @ ken_tex )
We are left with a general theme that the banking sector carries on regardless and simply ignores things like elections. Democracy has not reached the banking sector. There is a British implication as of course Santander is a big player in UK banking and as an aside this sees the first bail-in of a so-called Co-Co bond.
How is the economy doing?
We have the Bank of England with its foot hard down on the monetary policy pedal with a Bank Rate of 0.25% which as far as I can recall has barely merited a mention in the campaign! Amazing how that and £445 billion of QE ( including the Corporate Bonds) can be treated as something to be pretty much ignored isn’t it? Partly as a result of this we are facing a spell of higher consumer inflation which will lead to a contractionary effect on the economy due to the way it seems set to reduce real wages. But again this seems to have been ignored. Of course the Bank of England will be happy to be outside of the political limelight but when it is such a major part of economic policy there should at least be a debate.
Fortunately the edge has been taken off things by the decline in the price of crude oil back towards US $50 in Brent Crude terms and the rally of the UK Pound to US $1.29. This is a factor in the Markit business survey telling us this on Monday.
The three PMI surveys are running at levels that are historically consistent with GDP growing at a robust 0.5% rate, albeit with the slowing in May posing some downside risks to the near-term outlook.
So the economy continues to grow but at a slow pace overall. Of course the Bank of England will be concerned about this reported this morning by the Halifax.
House prices in the last three months
(March-May) were 0.2% lower than in
the previous three months (DecemberFebruary).
The mood of Bank of England Governor Mark Carney will not be improved by this as it refers back to a time before it began its house price policy push in the summer of 2013.
Prices in the three months to May
were 3.3% higher than in the same
three months a year earlier. This was
lower than April and is the lowest annual
rate since May 2013 (2.6%). The annual
rate is around a third of the 10.0% peak
reached in March 2016.
The Bank of England will also be worried by this signal that emerged yesterday. From Homelet.
UK rental price inflation fell for the first time in almost eight years in May, new data from HomeLet reveals. The average rent on a new tenancy commencing in May was £901, 0.3% lower than in the same month of 2016. New tenancies on rents in London were 3% lower than this time last year…….This is the first time since December 2009 the HomeLet Rental Index has reported a fall in rents on an annualised basis. The pace of rental price inflation across the UK has been slowing in recent months, having peaked at 4.7% last summer.
Of course whilst there will be concern and maybe some panic at the Bank of England that the £63 billion of the banking subsidy called the Term Funding Scheme has run out of puff. Meanwhile over at HM Treasury someone will be having a champagne breakfast as they slap themselves on the back for starting a rush to get rents in the official UK consumer inflation measure ( CPIH) last Autumn.
Back on the 23rd of May I looked at this.
Labour promised £75 billion a year in additional spending and £50 billion of additional taxes. The Liberal Democrats are also aiming for tens of billions of pounds in extra spending partially funded by more tax. Yesterday’s Conservative manifesto was much more, well, conservative………The Conservatives do not appear to have felt the need to spell out much detail. But they have left themselves room for manoeuvre.
Whoever wins we seem set for a period of higher taxation and higher expenditure but we remain in a situation where there is a lot of smoke blowing across the battlefield. There is of course also this from Labour.
we will establish a National Investment Bank that will bring in private capital finance to deliver £250 billion of lending power.
This has been an election where the economy has been out of the limelight. In a way this is summarised by the fact that we have heard so little from the current Chancellor of the Exchequer Phillip Hammond. This means that many important matters get ignored such as the apparent devolution of so much economic power to the Bank of England. An issue which is important as in my opinion it was captured by the UK establishment and now pursues policies that politicians would be afraid to implement.
Other important issues such as problems with productivity and real wages which have bedevilled us in the credit crunch era get little debate or mention. To that list we can add the ongoing current account deficit.
Yet some markets are at simply extraordinary levels and it is hard not to raise a wry smile at the ten-year Gilt yield being a mere 0.99%! Whatever happened to pricing an election risk? It also provides quite a boost over time to the fiscal numbers as it is well below the rate of inflation.