The UK economy is doing pretty well but inflation is on the cards

Today is a day where we await a raft of UK economic data under what is called an improvement by the Office for National Statistics. I have learnt to be circumspect about such things as for example the recent online improvement by the Bank of England means that it is harder to find things. However the UK economy has started 2017 in apparently pretty good shape highlighted by this already today.

We had a record Christmas week, with over 30 million customer transactions at Sainsbury’s and over £1 billion of sales across the Group.

Of course that is only one supermarket but more generally we have been told this.

The British Retail Consortium said a strong Christmas week boosted spending growth in December to a year-on-year rate of 1.7 percent, up from 1.3 percent in November.

Like-for-like sales – which exclude new store openings – saw annual growth of 1.0 percent, up from 0.6 percent in November.

So it would appear that the consumer is still spending and you may not the gap between these figures and the official ones. This shows us I think how much spending these days bypasses conventional retailing. Along the way I found some perhaps Second Hand News on the Sainsbury’s twitter feed.

Rumours? No, it’s true! Rumours by Fleetwood Mac was our number 1 selling Vinyl of 2016.

Business Surveys

The Markit PMIs released last week were rather upbeat too.

“Collectively, the PMI surveys point to the economy growing by 0.5% in the fourth quarter, with growth accelerating to a 17-month high at the year-end.”

Of course Markit still has some egg on its face from its post EU leave vote efforts singing along to an “it’s the end of the world as we know it” initial impact which turned out to be well if not fake news simply wrong.

The Bank of England

As well as issuing mea culpas the Bank of England is still running an extremely expansionary monetary policy. This afternoon it will purchase another £1 billion of UK Gilts ( government bonds) as part of its extra £60 billion of QE ( Quantitative Easing) as well as some Corporate Bonds. It also cut the official Bank Rate to 0.25% in August and let us not forget its latest bank subsidy the Term Funding Scheme which has provided them with £21.2 billion of cheap liquidity so far. No wonder bank deposit and savings interest-rates are so low.

Putting it another way if we use the old Bank of England rule of thumb the fall in the UK Pound £ has been equivalent to a 3% reduction in Bank Rate. This is why the “Sledgehammer” response in August was a mistake as it was in reality a minor addition to a powerful existing force, and was only likely to increase inflation this and next year.

Today’s figures

Production

These turned out to be strong as you can see.

In November 2016, total production was estimated to have increased by 2.1% compared with October 2016……..The monthly estimate of manufacturing increased by 1.3% in November 2016

This monthly surge was also reflected in the comparison with a year ago.

The month-on-same month a year ago estimate of total production increased by 2.0% in November 2016, with increases in all 4 main sectors; the largest contribution came from manufacturing, 1.2%.

In case you are wondering about the last bit the reason is that manufacturing is the largest sector (~70%) and therefore was responsible for 0.8 of the 2% but other ( smaller) sectors grew more quickly.

Looking at this we learn too things. Firstly the North Sea Oil & Gas maintenance period has faded ( the Buzzard field mostly) with output up 8.2% on the month. Secondly the pharmaceutical industry continues to be very volatile in 2016 being some 11.4% up on the month and as it has done so it has mostly taken the overall manufacturing numbers with it.

Also it is hard not to think of the different German performance which I looked at only on Monday when reading this.

both production and manufacturing output have steadily risen but remain well below the pre-downturn peak.

They seem suddenly shy about providing the exact numbers.

Trade

We saw a marginal improvement here if we look at the rolling quarterly data.

Between the 3 months to August 2016 and the 3 months to November 2016, the total trade deficit for goods and services narrowed by £0.4 billion to £11.0 billion, with exports increasing more than imports.

If we look further we see something of a hopeful sign.

The 3-monthly narrowing of the deficit is attributed to an increase of the trade in services surplus,

We need to be cautious on two fronts here as the decrease is small and the services numbers are not that reliable over even a quarter. Also the media seems already to be concentrating on the poor monthly numbers for November forgetting that they can be particularly influenced well be factors like this.

Imports of machinery and transport equipment rose by £1.4 billion, and were the largest contributors to the increase in imports.

The theme is continued by the fact that not so long ago some £20 billion or so was lopped off the estimates for the 2015 deficit. Even in these inflated times that is a fair bit more than just a rounding error! Also we do get contradictions in the data sets as pharmaceuticals surge in the manufacturing numbers but lead to more imports from Europe. They should be a positive influence for December bit let’s see.

Construction

Here the news was more downbeat as you can see.

In November 2016, construction output fell by 0.2% compared with October 2016, largely due to a contraction in non-housing repair and maintenance….The underlying pattern as suggested by the 3 month on 3 month movement shows a slight contraction of 0.1%.

These numbers sadly are quite a shambles so take them with plenty of salt or as it is officially put.

On 11 December 2014 the UK Statistics Authority announced its decision to suspend the designation of Construction output and new orders as National Statistics due to concerns about the quality of the Construction Price and Cost Indices used to remove the effects of inflation from the statistics.

A major theme of my work is the official inability and at time unwillingness to measure inflation from the housing sector properly and thus we see something of a confession. More than 2 years later it is still broken even according to the official measure.

Comment

So far the UK economy has done rather well post the EU leave vote as the storm predicted in the mainstream media never happened. Indeed if you are a fan of official data something has been going well for quite some time. From the twitter feed of the economics editor of the Financial Times Chris Giles.

UK income inequality at its lowest since height of Thatcherism

Another U-Turn? After all he led the Piketty charge for er inequality did he not? It is a bit like much of the Desert War in the 1940s when the British army had a phase of “order, counter-order, disorder”. My personal view is that there are lots of issues here such as inflation measurement which varies amongst groups as well as other problems and the fact that we need to look at assets as well.

Looking forwards we are likely to see some what might be called “trouble,trouble,trouble” around the summer/autumn as the increase in inflation impacts on us and via real wages looks set to slow the economy. Meanwhile the rhythm section to the UK economy continues to hammer out a trade deficit beat like it has for quite some time.

What are the financial and economic numbers behind the issue of Brexit?

I have regularly been asked for a breakdown of the finance and economics around the concept of the UK leaving the European Union. Perhaps the easiest part is to say that it is the European Union as some have been saying Europe which of course will remain about 22 miles from Dover in Kent whatever happens! As ever I will avoid the politics and stick to the numbers we can get something of a handle on. There are also a lot of areas which are contentious and the reason for that is we simply do not know some of the factors which will be in play. Let me illustrate by this published by the Open University magazine Conversationalist.

It opens by parroting the words of Chancellor Osborne.

George Osborne has said that mortgage rates will rise if there’s an Out vote.

It then argues that the higher risks of Brexit would mean this situation will happen.

This translates into higher borrowing costs for the UK government, and higher costs of capital for UK businesses.

Furthermore an outflow of capital will put pressure on many areas of the economy. Oh and aping “the pound would collapse” rhetoric of Yes Prime Minister we are told this.

The consensus forecasts are that the exchange rate would fall from its current value of around £1 for €1.27 to something more like parity with the euro. The latest forecast from the National Institute of Economic and Social Research think tank is of a 20% fall in the value of sterling

Such forecasts are fascinating. Has anybody published the track record of the NIESR in currency forecasting so we can see if they have the skills of a Druckenmiller or Soros?! I have to confess it is hard not to have a wry smile at such forecasts but on those grounds and the fact that many part of the UK establishment seem to have forgotten they want a lower UK Pound £ to help with the current account and trade deficits. Indeed it was Bank of England policy under Baron King of Lothbury although of course the promised “rebalancing” never happened.

One bit I can agree with.

Britain will face a substantial short-term economic shock if it votes to leave the EU.

The substantial may well be overdoing it and hype but there will be ch-ch-changes and a shock. Let me just deal with the higher mortgage rates point. You see and to be fair the article does mention this the Bank of England could have “an emergency interest rate cut” . If it chose it also could then use the Funding for Lending Scheme to reduce mortgage rates just like it did in the summer of 2012 and perhaps some more QE as well. After all some policymakers are heading in that direction anyway. Indeed those that are will be noting today’s data on economic growth.

Between Quarter 1 2015 and Quarter 1 2016, GDP in volume terms increased by 2.0%, revised down 0.1 percentage points from the previously published estimate……The latest Index of Services estimates show that output decreased by 0.1% between February 2016 and March 2016.

Suddenly mortgage rates are not rising and the situation is different again.

How much do we pay into the European Union?

The situation here is typically complex as the UK ONS explains.

The UK’s contribution to the EU budget changes each year as it is dependent on various factors such as: UK Gross National Income (GNI), the GNI of other EU member states and the value of the UK rebate (which is not a fixed amount, rather it is based on payments and receipts for the previous year).

In terms of numbers we have seen that the net contribution was £11.3 billion in 2013 and £9.9 billion in 2014. The 2015 numbers are still estimates but are as follows.

A 2015 initial figure used by some commentators in the debate is the £8.5 billion estimate of the UK’s 2015 contribution (which is net of the rebate and the direct payments from the EU to the public sector)…….Another estimate can be found in table H of this ONS release which includes some information on the UK’s official transactions with the EU in 2015. The figure published here is £10.6 billion; however, the information used to calculate this figure is approximate

Sadly it will not be finalised until the 29th of July when for referendum purposes it will be over a month too late. The numbers are never complete because some EU expenditure is general and not specified by country and some income such as fines is not split by country and these are around 2% of the totals.

What about trade?

This is a perennial issue for the UK economy with its seemingly endless deficits in this area where trade with the European Union is a major sub-plot. The latest ONS numbers are shown below.

In 2015, 44% of the UK’s goods and services were exported to the EU, while 53% of our imports came to the UK from the EU.

In the same year, UK exports to the EU were valued at £223.3 billion, while UK imports from the EU stood at £291.1 billion.

We rarely give ourselves credit for being a major trading nation although as I have already pointed out in accountancy terms we are regular debtors. The EU is a major trading partner and we provide some £291.1 billion of gross demand for their goods and services which is £67.8 billion in net terms. That is a lot especially to the countries in the EU which have seen particular economic difficulty such as Italy, Portugal and Greece. Indeed even countries currently in better shape such as Ireland and Spain see quite a bit of trade with the UK. And there is this.

15% of imports of goods came from Germany

From their point of view we are this.

The UK is also a relatively small export destination for EU goods, accounting for 6%-7% of total exports of other EU countries over the past eight years

I think “relatively small” is somewhat misleading as they are 27 nations so of course yes but who would want to give up 6-7% of their exports?

We have been shifting away from the EU in recent times although we have become more important to them.

Last year, goods exports to non-EU countries pulled ahead, with a 53% share of the total….The share of EU exports going to the UK has been gradually declining over the past 15 years, but it has risen marginally in the last four years.

There is also the “Rotterdam Effect” which inflates trade with the European Union via double-counting as total trade rather than value added is often used. Efforts have been made to reduce this but it still exists.

Comment

As you can see the tangible numbers tell us that the UK makes a substantial contribution to the EU budget and supplies a large amount of net demand for EU economies each year. I have often pointed out we are much better Europeans than we are given credit for. However this is a long way from the end of the story as there are a lot of factors we cannot specify. Would companies leave the UK post Brexit? What are the invisible benefits and costs of being part of the European Union? How will GDP growth change? After all even supporters of the IMF have to have had a wry smile at predicting a fall of 1.5% to 9.5%. You could drive a fleet of London buses through that! And of course that would have been appropriate for Greece but the IMF turned its “blind eye” to that.

There are costs to and risks in leaving as well as remaining in the EU. But in economic terms there are more dangers on the morning of the 24th of June if we leave. For example yes there could be problems for the Pound and the UK Gilt market and there could be a subsequent loss of trade with Europe. We do not know how much though beyond that there will be some of each. The uncertainty has been raised today by the migration figures which have been published as I cannot see how we can have any confidence in them, after all people have freedom of movement within the EU. But here they are.

In 2015, a total of 44% (277,000) of long-term immigrants to the UK were non-EU citizens, 43% (270,000) were EU citizens and 13% (83,000) were British citizens……

This is good for the age balance of the UK population and demographics but also looks to have contributed to the troubles with real wages.

So we know some of the picture but we also know that a fair bit is missing.

Meanwhile remember how we are regularly told how well things are going especially in Japan? Well someone seems to have changed the record. From Reuters.

Japanese Prime Minister Shinzo Abe warned his Group of Seven counterparts of a crisis on the scale of Lehman Brothers, Nikkei reported

Pensions and Tata Steel

Whilst on the subject of number crunching this suggestion for Tata Steel pensioners is wrong on so many levels. From the BBC.

The government is expected to propose basing the scheme’s annual increase on the Consumer Prices Index (CPI) inflation measure, which is usually below the current Retail Prices Index (RPI) measure.

This is a stealth cut to benefits by around 1% per annum which soon mounts up. It is therefore a breach of contract which presumably they hope to get away with because pensioners will not understand it. Even worse it sets a precedent.

So as Dawn Penn reminds us.

No no no

 

 

 

 

 

 

 

 

Is the UK just another victim of Industrial Disease?

It was only yesterday that I pointed out that the latest business surveys for the UK were suggesting a slowing of the rate of economic growth. Tucked away on the website of the UK Office for National Statistics there was also this.

UK labour productivity as measured by output per hour fell by 1.2% from the third to the fourth calendar quarter of 2015 and was some 14% below an extrapolation based on its pre-downturn trend.

This should not have been a complete shock as hours worked were up 1.7% in the labour market report whereas GDP had risen by only 0.6% but it was very disappointing. After all we were hoping that productivity would improve as the boom continues.

There are differing ways of measuring productivity and the full set is shown below.

By contrast, output per worker and output per job were both broadly unchanged between the third and fourth quarters. On all 3 measures, labour productivity was about half a per cent higher in Quarter 4 2015 than in the same quarter of 2014.

As you can see they disagree over the latest quarter but if we look at the previous year we then get another disappointing result as productivity growth of 0.5% compares with GDP growth of 1.9% and is even below the GDP growth per head of 1.1%. Indeed if we move to the wages figures we see this in the period to the end of December.

Between October to December 2014 and October to December 2015, in nominal terms, total pay increased by 1.9%

So wage growth exceeded productivity growth too as we wonder what is really going on. If we look back we see that the productivity issue has been one which has bedevilled the credit crunch era.

Output per hour across the service sector has grown in each year since 2009 (albeit only marginally so in 2010 and 2012). By contrast, manufacturing output per hour has fallen in 3 of the 6 years since 2009 and was lower in 2015 than in 2010.

The services sector

There is a real problem here measuring output and hence even worse problems with one of its derivatives productivity. This is highlighted by the debate over the sharing or collaborative economy which the ONS defines thus.

While there is no agreed definition of the sharing economy, it is generally regarded as being activity that is facilitated by digital platforms which enable people or businesses to share property, resources, time, or skills, allowing them to ‘unlock’ previously unused or under-used assets.

The problem for measurement is that money is not always exchanged which is a clear issue for GDP which is based on market prices but nonetheless there does seem to be economic activity there.

The sharing economy is a growing market within the UK; in 2014 it was estimated to be worth £0.5 billion and is forecasted to grow to over £9 billion by 2025.

I guess AirBnB,Uber and ZipCar are the most well-known examples of this and other estimates of the economic impact are even larger.

In 2014, Nesta3 estimated that 25% of the UK adult population are sharing online in some way and Professor Diane Coyle4 estimated that 3% of the UK workforce is already providing a service through the sharing economy.

There are various issues with this but my point is ( and this is one that I made to the Bean Review of UK Economic Statistics) is that we know much less than we should about services activity. There is an obvious flaw in it being some 80% by now of our economic activity and it means that derivatives such as productivity as even less reliable. Of course when the products are intangible as most services are there are problems to begin with.

Let me remind everyone that the UK trade figures are based on quarterly and annual surveys for services. So how do they produce monthly trade and hence output figures? Well exactly…..

Manufacturing problems

This morning’s output data is not exactly in line with the season and is not especially cheerful either.

The largest contribution to the fall (in the year to February) came from manufacturing, which decreased by 1.8%. This was the largest fall since July 2013, when it fell by an equal amount.

 

This was driven by a monthly fall as shown below.

manufacturing (the largest component of production) having the largest contribution to the decrease, falling by 1.1%.

If we look back for a greater perspective we see this.

In the 3 months to February 2016, production and manufacturing were 10.6% and 6.8% respectively below their figures reached in the pre-downturn GDP peak in Quarter 1 (Jan to Mar) 2008.

Back in October last year I expressed my fears about UK manufacturing as shown in the link below.

https://notayesmanseconomics.wordpress.com/2015/10/07/the-bank-of-england-will-be-worried-about-the-uk-suffering-from-industrial-disease/

What about manufacturing productivity?

There is an issue here and we should be better at measuring it than in the service sector for the obvious reason that something and hopefully lots of products are physically produced. But yesterday’s productivity update was particularly troubling in this area.

Output per hour in manufacturing fell by 2.0% on the previous quarter and was 3.4% lower than a year earlier.

A long way from the “march of the makers” isn’t it? Well it gets worse.

By contrast, manufacturing output per hour has fallen in 3 of the 6 years since 2009 and was lower in 2015 than in 2010.

Or as the ONS summarises it.

The weakness of manufacturing productivity since 2011 has been a defining feature of the UK productivity puzzle, notwithstanding a ‘false dawn’ in 2014.

We seem to have stopped trying to increase productivity and have instead employed more people to increase output. This is good for employment levels but does help explain why there has been so little wage growth and in fact why real wages are still lower now than pre credit crunch.

Production

It has not been a good phase for UK Production either.

Total production output is estimated to have decreased by 0.5% in February 2016 compared with the same month a year ago, the largest fall since August 2013.

We already know from the numbers above that it is some 10.6% below the pre-credit crunch peak. In essence there were two factors driving the most recent fall. I have already covered manufacturing and the other was the consequence of a mild winter for electricity and gas output. You may be surprised to learn that mining and quarrying was up by 4.7% and thereby was a 0.6% upwards influence in the last year.

It is hard to see how productivity here could be rising.

The trade problem

There is an element of same as it ever was here in today’s release.

Between the 3 months to November 2015 and the 3 months to February 2016, the total trade deficit (goods and services) widened by £3.8 billion to £13.7 billion. This is the largest 3 monthly deficit since the 3 months to March 2008, when the deficit was £14.4 billion.

On and on we go month after month,year after year,decade after decade and my friend Frances Coppola has referred to this in the Financial Times. She makes a fair point here.

There is a structural trade deficit of around 2 per cent of GDP, mostly with the EU. This widened slightly in Q4 of 2015, but only back to the 2014 position.

The rest of the current account problem is mostly investment flows and returns. But I do not agree about this bit. It shpuld be true but in practice rarely is.

Since we don’t have freely floating exchange rates, the world has persistent trade imbalances. But that’s also fine, as long as capital can move freely.

Also the latest productivity figures are rather eloquent in response to this.

There is zero evidence that the economy is undergoing a terminal decline in competitiveness.

Oh and if Frances will forgive me articles in the Financial Times telling us everything is okay are one of my warning signals.

Comment

There is here an eloquent explanation of why the UK Pound £ has been falling in 2016 and we no doubt need the boost that a move equivalent yo a 1.75% cut in Bank Rate will provide. The catch is that the 2007/08 devaluation and depreciation disappointed in terms of economic impact and the poor productivity figures are unlikely to help in that so we find ourselves singing along to and in Dire Straits.

He wrote me a prescription he said ‘you are depressed
But I’m glad you came to see me to get this off your chest
Come back and see me later – next patient please
Send in another victim of Industrial Disease’

The counterpoint is that the productivity figures are almost certainly wrong as indeed are the trade figures. The catch to this is that both series and the trade figures in particular have a long time series of problems and that is much harder to argue away. Oh and whilst I am on statistical issues things like this keep happening in a world where the official numbers says that there is no inflation. From Joe Sarling.

I feel the need to vent about England rugby tickets. Cheapest tickets available for Eng v Arg on general sale? £82 per person

 

 

 

 

What is really happening to world trade?

One of the features of economic life used to be that the world economy grew and that world trade grew even faster. This was a welcome development albeit one marred by the fact that there is an element of double-counting in world trade called the Rotterdam Effect. Back on the 12th of October I explained the OECD definition of it.

Traditional measures of trade record gross flows of goods and services each and every time they cross borders. This ‘multiple counting’ of trade can, to some extent, overstate the importance of exports to GDP.

I added to that the effect on some countries is very large and the Netherlands is once hence the name.

If we switch from Gross exports to value added then 36% of her exports in 2009 vanished into thin air,which has quite an impact on one’s view of her as an exporter.

Others are on the list as well.

Belgium may be grateful for the phrase Rotterdam effect as otherwise there might be an “Antwerp effect” as 35% of her gross exports vanish using a value added system……Luxembourg. Of its 2009 exports some 59% vanished if we move to measuring value added……….

Also trade figures have all sorts of problems as I pointed out back then and let me illustrate that with an example of a commodity which has been on the move in 2016 which is gold and my own country the UK.

The range of these revisions to the annual trade balance is between negative £5.0 billion and positive £3.0 billion. (announced in the 2014 Pink Book)

Makes you wonder does it not about the accuracy of it all as that money was shuffled from the financial account to the trade one? Time for The Stone Roses.

I’m standing alone
You’re weighing the gold
I’m watching you sinking
Fool’s gold

Indeed it is time for some revisionism about The Stone Roses as of course these days it would not only be their music which adds to GDP but the drugs too.

G-20

There has been some doom mongering in Shanghai already at the G-20 meeting with ABC News summarising it like this.

Global growth is at its lowest in two years and forecasters say the danger of recession is rising. The IMF cut this year’s global growth forecast by 0.2 percentage points last month to 3.4 percent. It said another downgrade is likely in April.

I do like the idea of the IMF being able to forecast economic growth to 0.2%! Regular readers here will of course be thinking it was wrong yet again. Oh and its Managing Director is bleating on about reforms, yes the same reforms that were promised at G-20 in 2014 as Groundhog Day returns. The 2% of extra economic growth will only come apparently if all that hot air reaches a wind farm.

The OECD has been on the case to as well according to Reuters.

Global growth prospects remain clouded in the near term, with emerging-market economies losing steam, world trade slowing down and the recovery in advanced economies being dragged down by persistently weak investment.

This was reinforced by hints of more easing from the People’s Bank of China which is convenient with the G-20 circus being in Shanghai. So let us move on with the mood music being downbeat.

The world trade figures

The Financial Times has been doing some click bait scaremongering overnight.

The value of goods that crossed international borders last year fell 13.8 per cent in dollar terms — the first contraction since 2009 — according to the Netherlands Bureau of Economic Policy Analysis’s World Trade Monitor.

Have you spotted what they have done? They have used the strong US Dollar as a measure of value whereas if you move to volume and the bottom of the article we see this.

Measured in volume terms the picture was not as grim, with global trade growing 2.5 per cent. But that fell below global economic growth of 3.1 per cent, extending a depressing trend in the global economy.

So we do have a concern albeit one of a lesser order that if world trade growth is slowing so presumably is world growth unless something is taking up the slack. Although this is a little awkward as much of it is  lower oil and commodity prices which may do just that! what we can say is that trade did fall in November and December as we wonder what happens next.

Shipping

Even JP Morgan seems to have caught onto the mood music in this area.

Private equity is turning its back on shipping after a glut of funding over the last five years contributed to overcapacity in the industry, according to Andrian Dacy, the head of JPMorgan Asset Management’s Global Maritime business.

This overcapacity has been a contributor to the fall in the Baltic Dry Index as we wonder why JP Morgan is telling people to get out at something of a nadir for it. Furthermore at a time of ever shortening horizons it is very revealing when someone talks of a 25 year time period don’t you think? If we look at its values we see that the BDI has bounced a little recently to 325 but that it a fair bit lower than the 500s of last February and a world away from the 1200s of last August.

If we move on from the BDI wondering how the relative impacts of overcapacity and demand interrelate we can find some help in the calmer waters of the Harpex Index. It covers seven classes of ships and gives us some insight into trade of consumer goods. What it is telling us is that there has been a slowing in this area. The recent peak of of 546 in the early summer of 2015 has been replaced by a drop to 364 where the weekly reading has remained for the last few weeks (okay one 363 ..).

Thus shipping is in a bear market and at least some aspects are in a depression but for the wider economy the picture is muddied and mixed by lower oil and commodity prices.

Comment

It is sadly ironic with apologies to Alanis Morrisette that the central bankers who proclaim Forward Guidance are pumping out an atmosphere of fear right now.

The global economy risks becoming trapped in a low growth, low inflation, low interest rate equilibrium.  For the past seven years, growth has serially disappointed—sometimes spectacularly,

That was Bank of England Governor Mark Carney who at least has not flown out to Shanghai to lecture us again on the risks of global warming. But the man who told us that monetary policy was not “maxxed out” seems to have undertaken yet another U-Turn.

It is a reminder that demand stimulus on its own can do little to counteract longer-term forces of demographic change and productivity growth.

After a few paragraphs of waffle claiming reforms have happened Mark then provides ammunition for critics like me who have long argued that one of the moral hazards of what central bankers have done is as shown below.

In most advanced economies, difficult structural reforms have been deferred.

Well you and your colleagues financed that Mark with your monetary policies. Also we got a confirmation that he plans to push the UK Pound £ lower as he morphs into Mervyn King.

Currencies’ values fell, boosting competitiveness – the exchange rate channel.

Except as Mark gets lost in his own land of confusion this apparently does not work because it is a zero sum game.

But for the world as a whole, this export of excess saving and transfer of demand weakness elsewhere is ultimately a zero sum game.

We also got a confession that my critiques may have hit home, “several commentators are peddling the myth that monetary policy is “out of ammunition.”  Is “the only game in town” over?”. Feel free to join the comments section Mark with stuff as shown below so people can reply.

Low interest real rates have bought time by bringing forward demand to today from tomorrow…..However, the effect of QE on the wealth channel cannot last forever.

Also those who remortgaged on the back of his Forward Guidance may wonder about how they lost and the banks gained.

And determined central bank action and forward guidance put a floor under inflation expectations and bolstered sentiment – the confidence channel.

Ah is that the same confidence channel his scaremongering is now undermining or a different one? Oh and what about the banks.

To be clear, monetary policy is conducted to achieve price stability not for the benefit of bank shareholders.

Never believe anything until it is officially denied……..