The pace of events has picked up again as whilst there is much to consider about the likely UK public finances something else has caught the eye.
Today, 20 December 2019, the Chancellor has announced that Andrew Bailey will become the new Governor of the Bank of England from 16 March 2020. Her Majesty the Queen has approved the appointment.
In order to provide for a smooth transition, the current Governor, Mark Carney, has agreed to now complete his term on 15 March 2020.
Making the announcement the Chancellor said: “When we launched this process, we said we were looking for a leader of international standing with expertise across monetary, economic and regulatory matters. In Andrew Bailey that is who we have appointed.
Andrew was the stand-out candidate in a competitive field. He is the right person to lead the Bank as we forge a new future outside the EU and level-up opportunity across the country.
It is hard not to have a wry smile at Governor Carney getting yet another extension! I think we have predicted that before. As to Andrew Bailey I guess that the delay means he will be busy in his present role as head of the Financial Conduct Authority covering up yesterday’s scandal at the Bank of England before he can move over. A new definition of moral hazard straight out of the Yes Prime Minister play book. There is the issue of the scandals he has overlooked or been tardy dealing with in his time at the FCA but there is something even more bizarre which was in the Evening Standard in 2016 and thank you to Kellie Dawson for this.
I was interested in the story of Andrew Bailey, new Bank of England chief battling a bear. Turns out his WIFE battled the bear while he was on the phone. Rolls knowing eyes at all women everywhere.
There was also some good news for the UK economy this morning.
UK gross domestic product (GDP) in volume terms was estimated to have increased by 0.4% in Quarter 3 (July to Sept) 2019, revised upwards by 0.1 percentage points from the first quarterly estimate…..When compared with the same quarter a year ago, UK GDP increased by 1.1% to Quarter 3 2019; revised upwards by 0.1 percentage points from the previous estimate.
So still an anaemic rate of annual growth but at these levels every little helps. One of the ironies in the Brexit situation is that annual growth is very similar as the Euro area is at 1.2%. As to the UK detail there is this.
Services output increased by a revised 0.5% in Quarter 3 2019, following the weakest quarterly figure in three years in the previous quarter. Manufacturing grew by 0.1% in Quarter 3 2019, as did production output. Construction output experienced a pickup following a weak Quarter 2 (Apr to June), increasing by 1.2%
So the “march of the makers” has in fact turned out to be the opposite of the “rebalancing” promised by the former Bank of England Governor Baron King of Lothbury. As I regularly point out services are becoming an ever larger component of UK GDP.
Also for once there was good news from the trade position.
The current account deficit narrowed to 2.8% of GDP in Quarter 3 2019, its lowest share of GDP since early 2012,
That is obviously welcome but there is a fly in this particular ointment as they seem to be splashing around between trade and investment.
The latest figures mean that net trade is now estimated to have added 1.2 percentage points to GDP growth over this period compared with the almost flat contribution in the previous estimate.
Gross capital formation is now estimated to have subtracted 1.2 percentage points from GDP growth since Quarter 1 2018 compared with the negative contribution of 0.5 percentage points previously recorded.
Also UK business investment over the past year has been revised up from -0.6% to 0.5% which is quite a change and deserves an explanation.
There were some announcements about future government spending in the Queen’s Speech yesterday. From the BBC.
Schools in England are promised more funding, rising by £7.1bn by 2022-23, which the Institute for Fiscal Studies think tank says will reverse the budget cuts of the austerity years.
Also there was this about the NHS.
The five-year plan, which sees the budget grow by 3.4% a year to 2023, was unveiled last year and was included in the Tory election manifesto.
The proposal to help on business rates was more minor than badged so we are seeing something of a mild fiscal expansion that the Bank of England thinks will add 0.4% to GDP. So can we afford it?
Debt (public sector net debt excluding public sector banks, PSND ex) at the end of November 2019 was £1,808.8 billion (or 80.6% of gross domestic product (GDP)), an increase of £39.4 billion (or a decrease of 0.8 percentage points) on November 2018.
As you can see whilst the debt is rising in relative terms it is falling and if we take out the effect of Bank of England policy it looks better.
Debt at the end of November 2019 excluding the Bank of England (mainly quantitative easing) was £1,626.6 billion (or 72.5% of GDP); this is an increase of £46.9 billion (or a decrease of 0.2 percentage points) on November 2018.
I am not sure why they call in QE when it is mostly the Term Funding Scheme but as regular readers will be aware there seems to be a lack of understanding of this area amongst our official statisticians.
It also remains cheap for the UK to borrow with the benchmark ten-year Gilt yield at 0.82% and more relevantly the 50-year yield being 1.2%. We have seen lower levels but as I have seen yields as high as 15% we remain in a cheaper phase.
Current Fiscal Stimulus
The UK has been seeing a minor fiscal stimulus which has been confirmed again by this morning’s data.
Borrowing in the current financial year-to-date (April 2019 to November 2019) was £50.9 billion, £5.1 billion more than in the same period last year; this is the highest April-to-November borrowing for two years (since 2017), though April-to-November 2018 remains the lowest in such a period for 12 years (since 2007).
If we go the breakdown we see this.
In the latest financial year-to-date, central government receipts grew by 2.1% on the same period last year to £485.7 billion, including £356.5 billion in tax revenue.
Over the same period, central government spent £514.6 billion, an increase of 2.8%.
With the rate of inflation declining we are now seeing increases in public spending in real terms and they may well build up as we have not yet seen the full budget plans of the new government.
Care is needed however as the numbers have developed a habit of getting better over time.
PSNB ex in the financial year ending March 2019 has been revised down by £3.3 billion compared with figures presented in the previous bulletin (published on 21 November 2019) as a result of new data.
We are at times living an episode of Yes Prime Minister as proved by the appointment of the new Governor.
Doesn’t it surprise you? – Not with Sir Desmond Glazebrook as chairman.
– How on earth did he become chairman? He never has any original ideas, never takes a stand on principle.
As he doesn’t understand anything, he agrees with everybody and so people think he’s sound.
Is that why I’ve been invited to consult him about this governorship?
Sir Desmond would be called a “safe pair of hands” too and no doubt would also have run into all sorts of issues if he had been in charge of the FCA just like Andrew Bailey has. Favouring banks, looking the other way from scandals and that is before we get to the treatment of whistle blowers. I do not recall him ever saying much about monetary policy.
Also the timing has taken yesterday’s scandal at the Bank of England off the front pages again like something straight out of Yes Prime Minister. We will never know whether this announcement was driven by that. However should it continue to be so accurate we can expect this next.
If I can’t announce the appointment of Mr Clean as Governor –
Why not announce a cut in interest rates?
Oh, don’t be silly, I What? Announce a cut in interest rates The Bank couldn’t allow a political cut – particularly with Jameson.
It would with Desmond Glazebrook.
Now, if you appoint him Governor, he’ll cut Bartlett’s interest rates in the morning – you can announce both in your speech.
– How do you know?
He’s just told me.