UK PM paves way for EU referendum

[Luffy 500]

the question is, why should Germany be liable to bail out those countries that don't want to do the hard work?

Off course they should not be liable. The germans have a right to get angry at their gov. But I
guess I germany is most vocal for EU existence since they have the most influence in EU. I
guess they don't want to lose it.

 

[kawaraj]

UK PM, etc. they all work for News Group, said earlier report.

 

[Hello_10]

Off course they should not be liable. The germans have a right to get angry at their gov. But I
guess I germany is most vocal for EU existence since they have the most influence in EU. I
guess they don't want to lose it.

its interesting that population growth of UK is also around 0.6%, this means population of UK might have increased by atleast 2.5% during last 4.5 years while the economy size is still 4.4% less in 'real term' than its peak of early 2008, means, per capita income of UK in 'real term' might be around 7% less than its peak of early 2008.

and from here, UK has the highest Foreign Debt/GDP, with around 86% public debt also. and with the proposed borrowing to tackle slow down in 2012, we hope Public debt of UK to go above 90% by end of this year . this way, we find UK's economy is only borrowing to survive somehow but still their per capita income in going down with a set pace. also because, everyone knows that now even whole EU's economies have just no future

 

[Hello_10]

Anger as UK slashes army numbers
July 06, 2012 8:27AM

THE British army will lose 17 major units in a sweeping restructuring to handle the loss of 20,000 soldiers under the government's austerity drive.

The UK's army is shrinking from 102,000 troops to 82,000 by the end of the decade - part of efforts to meet steep cuts to public spending ordered by Prime Minister David Cameron.

Cookies must be enabled. | The Australian

 

[Hello_10]

Greece is just a start, one by one, most of the OECD economies are heading towards their fate, as below:

18 May, 2012, Reuters

ATHENS/LONDON: In Athens, the homeless are on the streets in growing numbers, soup kitchens feed twice as many people as a year ago, and the poor are diving into garbage bins in search of scrap they can sell.

Greece is close to breaking point as it struggles with austerity targets set by creditors, but this is just a foretaste of the nightmare of unrest, hunger and even anarchy that could engulf the debt-crippled nation if it is forced out of the euro.

If the exact economic impact of such a move is hard to nail down - newly issued drachmas devalued by up to 70 percent, runaway inflation, a banking meltdown, a collapse in trade - the implications for ordinary Greeks crushed by the debt crisis are even harder to predict.

Without international bailout cash, salaries and pensions would go unpaid and violence, political extremism and uncontrolled emigration could quickly follow.

After voting inconclusively for parties that opposed foreign-imposed austerity, including the neo-Nazi Golden Dawn, Greeks head to the polls again in a month's time. This election is being portrayed internationally as a referendum on the single currency, even if Greeks do not yet see it that way.

A Greek exit from the 17-nation euro zone, or "Grexit" as some economists have called the once unthinkable eventuality, risks turning the nation into what would be close to a failed state on the edge of the European Union, one of the most prosperous societies the world has ever known.

Greece imports 40 percent of the food it consumes, nearly all of its oil and natural gas and much of its medicine. It has long been clear to some commentators that there could be trouble ahead.

Confronted with post-exit turmoil, foreign suppliers would simply put up the shutters until the situation becomes calmer, leading to acute shortages of basic commodities, which could fuel serious civil unrest, according to Bank of Greece Governor George Provopoulos.

Even if Greece did manage to import limited amounts of food and other basics, they would be cripplingly expensive.

Provopoulos warned as long ago as December that a return to the drachma would be "real hell", with Greeks forced to resort to barter during the transition period between the two currencies, "trading a kilo of olive oil for three kilos of flour".


"NIGHTMARE SCENARIO"

"There will be shortages in basic staples. Without fuel, the army and the police would not be able to move their vehicles. After a long period, things will return to a better balance. But during the first transitional phase we would be experiencing a nightmare scenario," Provopoulos said.

A former finance minister, Yiannos Papantoniou, saw trouble ahead nearly a year ago: "Greece would not be able to support 11 million people so there will be huge emigration flows," he told Reuters Insider television last July. "Disruptions, social disruptions will come. I would say a regime of total anarchy."

Last year 23,800 Greeks emigrated to Germany alone, 90 percent more than the previous year , German data show and Greeks are queuing up to learn German.

Most economists agree the austerity measures Greece is labouring under offer it little hope of recovery near term, and some argue that if it leaves the euro, it could export its way back to health on the back of a vastly devalued currency.

Nightmare foretold if Greece heads for euro exit | Reuters

 

[Hello_10]

LONDON--The UK economy likely contracted for a third straight quarter in the three months to June, deepening the country's recession, a think-tank said Tuesday.

The economic performance was distorted by the additional public holiday to celebrate Queen Elizabeth II's Diamond Jubilee, and underlying growth was more robust than the data suggest, the National Institute of Economic Research said.

NIESR estimates gross domestic product contracted 0.2% in the second quarter, compared with a 0.3% drop in the first quarter of the year.

UK 2Q GDP Shrank Estimated 0.2%, Underlying Growth Stronger-NIESR - WSJ.com

 

[Hello_10]

Almost 90% would 'consider moving abroad' for better financial prospects

Nearly nine in 10 Britons would consider leaving the UK for a better - and wealthier - life abroad within the next five years

The current recession combined with the perception that property is cheaper overseas and job prospects better collectively accounted for nearly a third of all reasons for emigrating, according to a survey by Skyscanner.

Sam Baldwin, Skyscanner’s travel editor, said: “For many people the idea of ‘living the dream’ abroad is very alluring. The survey revealed that our perception of life abroad is very positive – perhaps overly so – and many people come back from a holiday enamoured with their destination. Interestingly, Spain and USA were two of the most popular places even though both countries are currently suffering from their own economic problems, which suggests that the dream of moving abroad to improve financial prospects may be just that - a dream.

The dream may be more realistic if, rather than moving abroad to look for new work, you are sent abroad as part of an existing job. Around 750,000 British workers are being posted abroad on assignments with their existing employer, and a massive 84 per cent believe this is helping them to climb the corporate ladder, according to the NatWest International Personal Banking (IPB) Quality of Life Index.

They also feel they benefit from an improved lifestyle, backing up the Skyscanner research results, and the increasing use of temporary global workers means that the traditional definition of ‘expat’ is now being blurred, said Dave Isley, head of NatWest International Personal Banking.

He added: “The growth of the global worker has brought with it an opportunity to share knowledge and experience around the world. The great brain exchange is a fantastic concept of other economies temporarily sharing the strengths of British workers.

Almost 90% would 'consider moving abroad' for better financial prospects - Telegraph

 

[Alchemy]

EU is an unsustainable union. It is bound to disintegrate. Germany won't be able to handle the burden of bankrupt EU states anymore.

What you are saying is true , but we need a strong EU to consume and import goods produced from Subcontinent ... if demand reduces in EU , our growth slows down too !!!

 

[Hello_10]

What you are saying is true , but we need a strong EU to consume and import goods produced from Subcontinent ... if demand reduces in EU , our growth slows down too !!!

then what India may do for a stronger US/UK? if now the women like Sunny Leone/Catherine come to India then its because they know that prostitution is illegal for Indian nationals so these American/British women may have little earing in India in this side, also because prostitution is the only job which doesn't require skill in a woman. we hope it may help Britain have little inflow of money from India........

otherwise, whenever British PM come to India, his main purpose is to beg for jobs in India for British as now British dont want to live in Britain anymore. and India may help British get jobs only to an extent.......

David Cameron delivers address at Infosys Bangalore: Full Text
July 28, 2010

The Tata Group is now the largest manufacturing employer in Britain. And more than 180 Indian companies have invested in our IT sector.

Indian companies employ 90,000 people in the UK. Many more jobs in Britain exist thanks to the activities of British companies in India. Now I want to see thousands more jobs created in Britain, and of course in India through trade in the months and years ahead. That is the core purpose of my visit."

David Cameron delivers address at Infosys Bangalore: Full Text | NDTV.com

 

[Hello_10]

What you are saying is true , but we need a strong EU to consume and import goods produced from Subcontinent ... if demand reduces in EU , our growth slows down too !!!

sir, a total fall of US's/EU's economy will result in enormous benefits to India type developing countries. i remember during recession early 2009, i asked my one friend of Venezuela, "is there any profit to sell oil for the price $27/barrel?" as it was that time? he was working with me as projects engineer that time, Loice, and he answered, "even $27/barrel is a price which includes profit on the top of production cost." we clearly meant that $50/barrel is a quite reasonable price of oil and anything above it is a gift. but we also discussed that its mainly because of OECD countries who sell products for a very high price due to their high labor cost, so the oil rich nations also need higher price for oil to buy those products from OECD economies. and the final result is, first oil/gas/metal is expansive this way and at the same time products of US/EU is also very expansive and it all come from the pocket of developing nations, keeping them poor forever..........

in fact, US produce around 50% of oil it consume and Britain produce around 70% of oil it consume and any fall of their economies US$/Ponds will make them in the position of almost no oil import, after a free fall of their economies, as below.
https://www.cia.gov/library/publica...China&countryCode=ch&regionCode=eas&rank=5#ch

its all because, the cheapest coffee on the streets of Australia is sold for around $3.5, the minimum, and the same can be bought for hardly Rs20 in India, a pretty good coffee. while the petrol price is $1.3 in Australia and Rs80 in India? its cheap to drive to a suburb than buying a ticket of bus and hence, people have more cars in Australia than total population there. less people in the busses, very few in case of Perth I saw. but if the AU$ fall by 400%, say, then people there will be willing to be in busses more than driving cars, obviously?

i mean, total oil import bill of India last financial year was around $140bil at the average oil price of $110/barrel last year. and excluding export of refined oil, you consumed oil worth around $120bn and this way there was a loss of around $60bn to $80bn due to the oil price over $50/barrel. and also, until US/EU economies fall, you will have to keep paying over $100bn for import of their products which would cost hardly around $25bn to $30bn if the US$ and Euro suddenly fall, as it will then make their products cheap in terms of exchange rate and also it will then be hard for them to import too much oil/gas/metal, bringing the oil prices well below even $40/barrel for a long period of time. you will then have saving of at least $20bn on the side of import from China also as they will then have cheap energy/metal to manufacture the products, they export to India.......

this way I may say, a sudden fall of US$/Euro will result in around $150bn to $200bn saving on the import side and at the same time you may lose upto $150bn on the export side of combine merchandise/service export, no more than that. this way, you will lose jobs of maximum $150bn export but it will result in minimum saving of $150bn on import side. and then we may invest that $150bn in infrastructure to first generate jobs of $150bn and also to have new infrastructure. this way, until you want to keep jobs of $150bn export, you will have to keep paying price of it on the side of import. while from my side I may say, India is not as much dependent on export as China+ASEAN+OECD and any loss on the export side may be fulfilled by increase in domestic consumption on long term. but after that, being more capable to import high tech products at low price from OECD nation, will finally help you have a better shape of Industries, which you can't right now as you simply can't import high tech products so 'freely', also. as, they are too expansive in the current exchange rate terms of US$/Euro.........

fall of US/EU economies will bring huge benefits which can't be stated in one post...........

 

[Hello_10]

its interesting that population growth of UK is also around 0.6%, this means population of UK might have increased by atleast 2.5% during last 4.5 years while the economy size is still 4.4% less in 'real term' than its peak of early 2008, means, per capita income of UK in 'real term' might be around 7% less than its peak of early 2008.

and from here, UK has the highest Foreign Debt/GDP, with around 86% public debt also. and with the proposed borrowing to tackle slow down in 2012, we hope Public debt of UK to go above 90% by end of this year . this way, we find UK's economy is only borrowing to survive somehow but still their per capita income in going down with a set pace. also because, everyone knows that now even whole EU's economies have just no future

Britain sinks far deeper into recession than expected

(Reuters) - Britain's economy shrank far more than expected in the second quarter of 2012, battered by everything from an extra day's holiday to budget austerity and the neighbouring euro zone crisis.

Finance minister George Osborne said the country had "deep-rooted economic problems".

The Office for National Statistics said Britain's gross domestic product fell 0.7 percent in the second quarter, the sharpest fall since early 2009 and a bigger drop than any of the economists surveyed in a Reuters poll last week had expected.

The figures confirmed that Britain is mired in its second recession since the financial crisis, with the economy shrinking for a third consecutive quarter.

It will add pressure on Osborne to get the economy growing again after a crisis that has left many Britons poorer as rising prices and higher taxes ate up meager wage increases.

Sterling hit its lowest in nearly two weeks against the dollar after the data, and government bond prices rallied on speculation that the Bank of England may have to provide more economic stimulus than expected.

Earlier this month the BoE has announced another 50 billion pound program of gilt purchases with newly created money to soften a grim economic outlook, but Wednesday's data is likely to add to market speculation that it may cut interest rates later this year.

"This is terrible data. Frankly there's nothing good that comes out of these numbers at all," said Peter Dixon, an economist at Commerzbank.

"The economy looks to be badly holed below the water line at this stage. It's a far worse period of activity than we'd expected."

HEADWINDS

Economists had been expecting an extra public holiday to mark Queen Elizabeth's Diamond Jubilee to reduce output by around 0.5 percent, so the latest figures suggest the economy is also contracting on an underlying basis.

The ONS said it was too early to provide an estimate of the Jubilee effect, but warned that this and very wet weather added "uncertainty" to its calculation of economic activity towards the end of the quarter.

Output in Britain's service sector -- which makes up more than three quarters of GDP -- contracted by 0.1 percent in the second quarter after growing 0.2 percent in Q1 2012.

Industrial output was 1.3 percent lower, while construction -- which accounts for less than 8 percent of GDP -- contracted by 5.2 percent, its biggest drop since the first quarter of 2009.

Overall second-quarter GDP was 0.8 percent lower than a year earlier, the biggest decline since the last three months of 2009.

Before Wednesday's data, most economists expected a return to growth in the third quarter, as the London Olympics offer a one-off boost through ticket sales and visitors spending.

And some argue that increasing employment levels suggest the economy is healthier than the headline GDP figures suggest.

But the overall outlook is poor. Last week the International Monetary Fund slashed its growth forecast for Britain by more than those for any other advanced economy, and warned the government and BoE that they will need to rethink their approach if the economy fails to pick up by early next year.

AUSTERITY

Eliminating Britain's structural budget deficit over the next five years is the central political goal of Britain's coalition of Conservatives and Liberal Democrats, but the opposition Labour Party says the pace is too rapid.

Over the past month the coalition and BoE have announced several measures to ease the flow of credit to households and businesses, as the euro zone debt crisis saps demand in Britain's major export markets.

But for now, any change to the fiscal austerity program is opposed both by finance minister George Osborne and BoE Governor Mervyn King, who fear it could trigger a loss of confidence in Britain's commitment to long-term deficit reduction.

"We're dealing with our debts at home and the debt crisis abroad. We've made progress over the last two years in cutting the deficit by 25 percent and businesses have created over 800,000 new jobs," Osborne said in a statement.

"But given what's happening in the world we need a relentless focus on the economy and recent announcements on infrastructure and lending show that's exactly what we're doing." (Reporting by David Milliken and Olesya Dmitracova)

Britain sinks far deeper into recession than expected | Reuters

 

[Hello_10]

This isn't just a bad quarter, it's the worst quarter since the start of 2009. Britain's economic output is now 5% less than it was on the eve of the global recession. Construction has taken a hammering from cuts in government investment, the service industries are anaemic and manufacturing is shrinking again.

UK GDP figures: expert panel verdict | Frances O'Grady, Will Hutton, Sheila Lawlor, Vicky Pryce and John Cridland | Comment is free | guardian.co.uk

and as population growth rate of Britain is 0.6% per year, this way British population might have been increased by around 2.5% since early 2008. hence we find Per Capita Income of Britain would be at least 7.5% less than its peak of early 2008, in PPP term adjusting inflation

also, Public Debt of Britain was around 86% in 2011 and during the first two quarters, they borrowed more and GDP also contracted so I think their Debt/GDP might be around 92% to 95% right now and would cross 100% by end of this year, as per the proposed borrowings. this way we find, Debt/GDP of Britain has increased from 50% in early 2008 to 100% by end of this year while their per capita income would have been reduced by 8% till end 2012.........

this way, right now Britain is only borrowing to survive somehow while they are already on a slow pace of decline, even after so much borrowing of debt also to protect the whole economy from a free fall

Debt/GDP ratio of Countries till end 2011

United Kingdom 85.7 2011 est.

United States 104.1 2011 est.

List of countries by public debt - Wikipedia, the free encyclopedia

https://www.cia.gov/library/publica...ok/rankorder/2002rank.html?countryName=United Kingdom&countryCode=uk&regionCode=eur&rank=146#uk

 

[Hello_10]

UK economy: "worst figures yet"
Tuesday, 31 July 2012

“Thank God for the Olympics!” must be the cry from most if not all Tory Ministers after the economic news of the last week. They will be more than a little relieved that the London Games will be hogging all the news for the next few weeks at least. However, we all live in the real world and in that world we can see the consequences of two and a bit years of this Coalition. We are now in the longest “double dip” recession for over 50 years.

The latest data from the Office of National Statistics could hardly have been more damming if they had tried. The economy shrunk by 0.7 percent between April and June of this year. The Independent newspaper of 26th July explained where this was rooted; ‘ … the biggest quarterly fall for the beleaguered UK economy since early 2009… Britain’s manufacturers and builders saw their deepest slump for more than three years, with even the dominant services sector – accounting for more than three-quarters of the economy – slipping into decline as the eurozone’s debt crisis sapped confidence.’

Economists continue to be baffled by all this. Excuses have been pushed forward including blaming the Jubilee and the bad weather. The Olympics will boost the figures during the current quarter but they finish shortly. The trouble with economists – from both right and left – is that they are obsessed with charts and spreadsheets and formulas. They are constantly trying to identify cycles and waves to show how the economy moves. According to their graphs and charts the recession had finished – the double-dip shouldn’t have happened. But it has. In fact, it could be argued that we never really left the first recession. This is just a double–dip in the sense that a roller coaster goes up and then down yet forms part of one long, long, ride. The talk is now of a triple-dip recession.

Marxists had been warning of this crisis for many years before it hit. We explained that madly using credit to the degree that they did in order to extend the market for capitalist goods would sooner or later come back to bite them. Marx drew attention to the use of credit in capitalism in his writings on the economy but even he would have been astonished at the madness of a class prepared to pump an already booming economy in order to grab easy extra profits. The bosses really believed “boom and slump” had been abolished but the system was ready to crack at its weakest points. This turned out to be the US housing market and the deeply corrupt finance houses. They had been living a dream of never-ending profits for little or no risk; reality did not exist for them. Standing on a house of rotting cards, the crisis hit them before they knew it. Although people have rightly poured scorn on the banks for their greed and stupidity, their crisis is just a reflection of the deeper and more fundamental crisis of world capitalism. (see The crisis of European capitalism for a more detailed analysis of this)

All crises of capitalism, whatever the main trigger or most visible symptoms turn out to be, can ultimately be reduced to a crisis of over-production. Not over-production of stuff we need of course (that requirement wouldn’t enter the bosses’ minds) but over-production of commodity goods produced for profit in the capitalist market. Once the markets were revealed as just illusions the crisis bit down with a vengeance. Banking credit dried up, sales fell; warehouses remained full of unsold goods and capitalists were forced into feeding off each other to remain afloat. Firms went bust, people were pushed onto the dole, spending fell, more goods lay unsold and the deadly spiral continued. Such massive over-accumulation of goods, factories, loans etc cannot be quickly paired down to a level where things can start to return to normal, whatever that might be.

The Tories hoped – and were promised this would happen by the economists – that things would be picking up by now and the worst was well behind them. They were wrong. Sure, the regime of austerity would have to continue for a decade but at least the economy would be growing to compensate. Instead it looks like this crisis has more than a little life in it after all.

Panic has now started to grip the ruling class. Osborne is coming under increasing attack for being “useless” “the most inept chancellor for 50 years” and so on. Tory MPs – seeing the huge lead for Labour in the opinion polls – are feeling the heat and baying for blood. The Lib-Dems have also broken ranks with a call for “plan A plus” to replace the current austerity plans. The right wing of the Tory party see hitting Osborne as a way of getting at Cameron, who they have never forgiven for not winning the last election outright. If anything they want more cuts not less. This is in itself an indication of the dominance of finance capital within the echelons of the Conservative party.

However, all the talk of plan A (huge austerity cuts to reduce the state deficit) and plan B (slowing down the cuts – for now that is – to stimulate the economy by maintaining public spending) rather misses the point. Under capitalism neither option is a solution to their crisis. They solve one side of the crisis by making the other side worse. It is rather like pushing one end of a ship under water to keep the other end above the waves. In the end the ship still goes down. In that sense the cuts flow not from a desire by the Tories to hammer the masses, although they are happy to do that, but from the logic of capital itself. In fact under different circumstance they would have been quite happy to have maintained public spending during this crisis in order to keep unemployment down and help protect their parliamentary seats at the next election. But the looming threat of Sovereign Debt will not go away. The Coalition’s masters in the world of finance capital have commanded them to slash the public debt deficit and thereby protect their interests. They do not like the look of what is happening in Spain, Italy and Greece. But they are wobbling under pressure and may lose their nerve yet there is no way out for them. Osborne may be sacrificed but little will change.

One thing is certain: the working class will continue to be asked to kindly pay for this crisis come what may, unless we do something about it. The task for the movement is therefore to ramp up the fight for socialist policies and for an end to this capitalist system.

Socialist Appeal - UK economy: "worst figures yet"

 

[Hello_10]

UK manufacturing PMI falls to lowest level in more than 3 years

LONDON, Aug 1 (Reuters) - Britain's manufacturing sector shrank at its fastest rate in more than three years in July, a survey of purchasing managers showed on Wednesday, dealing a blow to hopes that the country was about to come out of recession.

The grim news supports the view that the Bank of England will add further stimulus once its current 50 billion pound ($78.3 billion) plan to buy government bonds with newly created cash ends in November. It even triggered speculation the central bank could step up its programme when its August policy meeting ends on Thursday.

Britain fell into its second recession in four years around the turn of the year, and the economy contracted by a further 0.7 percent from April to June due to government spending cuts, euro zone turmoil, bad weather and an extra public holiday.

Many economists have been betting that some of the output lost will be recovered in the third quarter, but the Markit/CIPS Manufacturing Purchasing Managers' Index's (PMI) drop to 45.4 from 48.4 in June raises the risk of another contraction.

It was the lowest reading since May 2009, further off the 50 mark that separates contraction from growth, and well below even the most pessimistic economist's forecast in a Reuters poll.

The weak survey sent sterling to a two-week low against the euro and supported gilts which outperformed their German equivalent.

"Pretty terrible, surprisingly bad," Tom Vosa, an economist at National Australia Bank, said about the PMI. "Ultimately, this puts more pressure on the (Bank of England) to cut Bank Rate, and certainly the government now has to hope that its Funding for Lending Scheme really comes good," he said.

"But of course, if you are a lender in the UK and you are looking at this economy, why would you necessarily want to extend credit?," he said.

The government's scheme to get credit flowing through the economy officially started on Wednesday.

Business lobby groups applauded the plans to boost lending, but economists warned against putting hopes too high.

The scheme was an important step to lower banks' funding costs and ease lending conditions, but was unlikely to be a "game changer", Goldman Sachs analyst Kevin Daly said in a note.

Tight credit together with a lack of consumer confidence has been a major drag on the economy, hitting the housing market particularly hard.

House prices in Britain fell at their fastest annual pace in nearly three years in July, mortgage lender Nationwide said.

However, some retailers are bucking the gloom: Britain's second-biggest clothing retailer Next's sales rose 4.5 percent in the six months to July 28, and its chief executive said he did not expect the economy to take a turn for the worse.

CRISIS

Britain's economy has not yet recovered the output lost during the 2008/2009 slump, and the renewed recession comes at a time when many Britons are seeing their finances squeezed by rising prices and higher taxes, eating away measly wage rises.

"The domestic market shows no real signs of renewed life, while hopes of exports charting the course to calmer currents were hit by our main trading partner, the euro zone, still being embroiled in its long-running political and debt crises," said Markit economist Rob Dobson.

The PMI survey showed that export orders fell at the sharpest rate since the height of the financial crisis in February 2009, and the output index slumped to 43.3 from 51.9, also the lowest level in more than three years.

"It looks like the sector remains a major drag on the overall economy," Dobson said.

The slump in manufacturing is also keeping the pressure on policymakers to get the economy going again.

The government sees no room for a major spending boost, having pledged to erase a huge budget deficit within the next five years, thus leaving the onus on the central bank.

Most economists expect an extension of the BoE's purchases of government bonds beyond the current goal of 375 billion pounds in November, but some see a chance of earlier action.

"While we accept it is a close call, we believe that the extent of the revisions to the Bank's projections mean that the Bank will not wait until November to expand QE further - rather it will act at this meeting," said Alan Clarke from Scotiabank.

The BoE looks likely to slash its inflation and growth forecasts in its August inflation report, which governor Mervyn King will present next week.

The PMI survey showed that companies' cost pressures eased as prices for chemicals, oil, metal, paper and plastics fell. But firms still hiked their selling prices, Markit said.

Consumer price inflation has fallen sharply in recent months and the British Retail Consortium said on Wednesday shop prices rose at the slowest pace in more than 2-1/2 years in July.

UPDATE 2-UK factory slump shows no quick end to recession | Reuters

 

[Hello_10]

Britain is losing the economic Olympics

As London prepares for another display of British pageantry and good humor to match the unlikely triumph of last month’s rain-sodden Royal Jubilee, a less impressive aspect of Britain’s stoical “stiff upper lip” may detract from the national pride associated with hosting the Olympics. In the global race out of recession, Britain has just been revealed as a prime contender for the wooden spoon.

Not only was the shocking drop of 0.7 percent in Britain’s second-quarter GDP reported on Wednesday much bigger than investors and independent economists had expected but it almost matched the 0.8 percent fall in Italy’s GDP the previous quarter. And that Italian drop holds the record for the biggest quarterly contraction suffered by any G7 country since the immediate aftermath of the Lehman crisis. Much more important than such statistical trivia is the fact that Britain’s economic output is still 4.5 percent below the peak level it reached in the first quarter of 2008, more than four years ago. The U.S. and German economies, by contrast, are now significantly bigger than they were before the crisis and, in this sense at least, have left the recession behind them. And even the euro zone as a whole, despite the severity of its financial crisis, has done much better than Britain, with GDP just 2 percent below its peak in 2008.

National economic performance is not, of course, a competitive Olympic sport, and there is more to economic success than GDP growth. Still, there is a good reason for connecting the Olympics with economics: International competitions and comparisons can teach useful lessons and create incentives to improve economic management.

The most instructive international comparison at present is between the British and American efforts to clamber out of recession and financial crisis. This race is about as close as economics can get to a controlled experiment of the kind favored by natural scientists, in which sharply different policies are applied to two countries with broadly similar structures and initial conditions, facing similar economic problems.

In 2008, the U.S. and Britain were two advanced economies with large financial sectors, dangerous housing bubbles, heavy consumer debt and similar government deficits and debt levels relative to GDP. Both suffered extremely severe banking crises that forced their governments to take on huge additional liabilities by guaranteeing their biggest banks. For two years after the Lehman crisis in September 2008, the two economies followed broadly similar policies: slashing interest rates to zero, allowing large expansions of their budget deficits and financing the resulting debt with newly printed money. The two economies moved closely in tandem, as economic theory would have predicted: both on the way down until mid-2009 and then on the way up until mid-2010.

But then, in the summer of 2010, the newly elected British government set a radically different course for one very specific and controversial aspect of economic policy – government borrowing. Instead of simply tolerating the big budget deficits that had resulted from weak economic growth, as both the U.S. and British Treasuries had done until 2010, David Cameron decided his top priority would be to reduce government borrowing. He planned to do this by slashing public spending and imposing substantially higher tax rates. The U.S. government, meanwhile, continued with a fiscal policy of benign neglect. Despite all the sound and fury in Washington about deficits and debt limits, U.S. tax rates and public spending plans remained broadly unchanged through 2011 and 2012, with a small cut in payroll taxes largely offsetting the fiscal impact of cuts in local government spending and employment. In all other respects conditions in the two economies remained unchanged. Both central banks continued to print money and to keep interest rates near zero. The dollar and the pound moved very little against one another, and exports grew moderately in both countries, despite the crisis in the euro zone. In short, this really was a controlled experiment on the impact of different fiscal policies.

Curiously enough, the two economies began to diverge from the moment this controlled experiment started, with the British economy contracting in the third quarter of 2010, while growth accelerated in the U.S. In the period since then, the U.S. economy has expanded by 2.7 percent, while Britain has contracted by 0.8 percent. The latest results of this experiment will be revealed on Friday, when the U.S. GDP figures are published and can be compared with the 0.8 percent fall in British GDP just announced.

It may be said, of course, that the British policy of fiscal consolidation was still justified, even if the U.S. enjoys much stronger growth, as it almost surely will. After all, controlling public debt and deficits is an important national objective that counts for more than simply juicing up short-term growth.

But this is where we get to the really significant and surprising feature of the race out of recession. Britain’s heroic spending cuts and tax increases imposed by the Cameron government may contrast starkly with lassitude and cowardice displayed by politicians in Washington. But this dramatic political contrast has made absolutely no difference on the debt and borrowing outcomes the two countries have actually achieved, because the British austerity has simply prolonged recession, while U.S. fiscal laxity has allowed the economy to grow. According to the latest IMF figures, published two weeks ago, the U.S. budget deficit has been reduced from 10.5 percent of GDP in 2010 to 8.2 percent in 2012. This reduction is a slightly bigger reduction in the deficit than Britain has managed to achieve in the same period – from 9.8 percent to 8.1 percent.

In short, any country determined to control public borrowing should forget about fiscal austerity and instead do everything to grow as fast as it can – a fitting economic message from Olympic Britain.

Britain is losing the economic Olympics | Anatole Kaletsky