Here's more on the critical economic front. I find Kaletsky's
article very strange. He lists in poignant detail all that's going
wrong with painful accuracy but still comes up with a beatific smlie
and says - without much rationale - that it'll all be alright some
day! Voltaire's Pangloss coined a word for this attitude!
xxxxxxxxxxxxx cs
====================
TELEGRAPH 15.8.08
1. Economic recovery still a long way off, Bank of England chief warns
By James Kirkup, Political Correspondent
The world economy has a "long way to go" before it recovers from the
worst crisis since the 1970s, the deputy governor of the Bank of
England has warned.
Charles Bean said that there is little prospect of an economic
recovery until well into next year, meaning households' income will
remain under severe pressure for months to come.
Professor Bean's bleak assessment of the economic outlook follows
figures last week that confirmed that UK economic growth has ground
to a halt after 16 years of unbroken expansion.
The end of economic growth has strengthened predictions that Britain
will dip into a full recession this year.
Prof Bean, speaking to the BBC in a central bankers' conference in
Wyoming, did not explicitly mention a recession, but he made clear
that the tough economic times will continue.
"We've got our fingers crossed that things will improve. But there is
the recognition that there is still a long way to go yet," he said.
"It looks like it will drag on for some considerable time further yet."
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Oil prices have tripled in two years, helping push up inflation
around the world.
"It's fair to say that if you look at the shocks impinging on us this
is at least as challenging a time as back in the 1970s," said Prof
Bean. "Some people have said it's as big a financial shock as the
Great Depression and as far as the oil shock goes the rise in oil
prices is in the same order of magnitude that we had to deal in the
1970s."
Soaring energy prices helped push UK inflation up to 4.4 per cent in
July, the highest since records began in 1997 and more than twice the
Bank of England's target of 2 per cent.
High inflation and failing growth has raised fears of "stagflation"
in the British economy, and the need to curb inflation without
further smothering economic activity has left the Bank of England's
Monetary Policy Committee split over whether to raise or cut interest
rates.
Prof Bean suggested that the dilemma will ease as prices gradually
fall from their current peaks.
He said: "On the assumption commodity prices remain stable and if
anything fall back, then inflation should drop back as we go through
next year.
"One would hope that the conditions in credit markets should
gradually start to improve and those two factors will help to ensure
growth will start to pick up as we go through next year.
But he added: "It's going to be a tricky period. Household real
income is very low. That will make it difficult for households and
there are difficult social issues that will arise."
The economic downturn is undermining Gordon Brown's Government, which
has come under fresh attack from a business leader over tax.
Miles Templeman, the director of the Institute of Directors, said
that corporate taxes are "unacceptably high" and warned that business
has lost faith in Labour.
"The government, in the last five years particularly, has not really
embraced the business agenda thoroughly enough," said Mr Templeman.
"The Brown premiership has carried on that trend. And then you've got
all the economic pressures and some of the tax cock-ups as well."
===============
2. Credit crunch prompts surge in employers seeking advice on sacking
staff
By Lucy Cockcroft
Employers are increasingly seeking advice on how to sack their staff,
lawyers have reported.
The trend suggests that a further round of redundancies may be on the
way as Britain's economic outlook remains gloomy.
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Allianz insurance group has said its legal helpline, Lawphone,
received a record number of calls inquiring about redundancy issues
last month.
More than a third of the calls were about employment concerns,
compared to just 2.4 per cent in the same period last year.
Ian George, senior solicitor at Allianz Legal Protection, said: "We
are seeing an unprecedented number of redundancy-related calls. It
started off in the transport and logistics sectors and has seen rapid
growth across the UK, and clearly reflects the current economic
environment."
Financial institutions and construction companies have announced more
than 10,000 job losses since the end of June, and now there are fears
that these redundancies will spread to other sectors of industry.
A spokesman for corporate law firm Travers Smith also reported
another "surge of inquiries from employers asking us about the
implications of redundancies recently, following the spate of job
losses announced over the past few weeks."
Lawyers have warned that managers, especially of small companies, may
have limited experience of coping with an economic situation like
this and could fall foul of employment law if they fail to follow
proper procedures.
=======================
THE TIMES 25.8.08
Britain in no danger of 'sick man of Europe' relapse
Anatole Kaletsky: Economic view
The British economy's 16-year period of uninterrupted growth
officially ended with the announcement on Friday that second-quarter
gross domestic product showed zero growth, rather than the previously
estimated 0.2 per cent. Does this really matter to anyone but
statisticians or devotees of Guinness World Records? The answer
depends on whether this slowdown turns out to be a hiccup or the
start to a prolonged period of zero or negative growth. In the former
case, the temporary slowdown will soon be forgotten - or will be
remembered merely as the statistical by-product of a correction in
house prices that was inevitable and overdue.
However, if, as is widely assumed, the stalling of the economy in the
second quarter marks the beginning of a recession lasting into next
year, then the implications will spread well beyond the statistical
yearbooks and estate agents' windows. Unemployment and business
bankruptcies will rise sharply, government finances will sink deep
into deficit, sterling will plunge and housing and equity markets
will suffer years of poor, depressed conditions, as they did in the
early 1980s and between 1990 and 1995.
Almost everyone in Britain, with the possible exceptions of Gordon
Brown and Alistair Darling, seems to agree with the latter prognosis.
Conventional wisdom asserts that after a decade of profligate self-
delusion, Britain has reverted to its traditional position as the
sick man of Europe; indeed, that Britain is one of the sickest
economies in the world. Regular readers of this column should be
familiar with certain aspects of this view. Although I initially
underestimated the depth and duration of the global credit crunch, I
have argued throughout the past 12 months that Britain would be more
vulnerable than the United States or any other big economy to
whatever global financial problems did emerge.
While British politicians and commentators kept describing Northern
Rock and other banking problems here as by-products of the US sub-
prime crisis, I was perplexed by this view. After all, Britain's
property markets were much more overextended than America's, our
levels of mortgage borrowing much higher and our economic dependence
on banking and finance much greater than in the US. It seemed likely,
therefore, that if the credit binge of the past decade was really
going to produce a serious hangover, the symptoms would be worse in
Britain than in the US.
In fact, when the building societies were still predicting a soft
landing in the housing market, before the freefall that began in
April, I wrote here that the long-dreaded correction in house prices
had hardly even started and that anyone who thought that the US
housing market was suffering a "crisis" or "disaster" should reach
for the Book of Revelation to find appropriate words for Britain's
prospects in the year ahead. I mention this OTT imagery only because
Brixton Estates, one of Britain's most successful and shrewdly
countercyclical property companies, featured the Four Horsemen of the
Apocalypse on its annual report last week.
The message was similar to the one I was trying to convey: the state
of the British economy - and, certainly, of the property market - is,
indeed, worse than it has been for 15 years and, in my view, much
worse than the situation in America. But before we prepare for the
rains of fire and blood, we should recall two observations: first,
that the past 15 years have been a period of exceptional prosperity
and, secondly, that US economic and housing statistics, despite all
the apocalyptic prophecies, are showing clear signs of stabilisation
and even improvement. So although it is overoptimistic to expect any
quick return to the boom conditions that preceded the credit crunch,
it is a gross exaggeration to compare the problems of today with the
worst economic and financial crises of the past decades. And, indeed,
the sentiment on the British economy has swung so far to the
pessimistic extreme that the big surprises - and the big financial
opportunities - in the coming year will probably be on the upside.
To see what I mean, compare the market sentiment about Britain with
the economic reality. The pound, after suffering another swoon in the
wake of Friday's GDP figures, is unequivocally regarded as the
world's weakest important currency. British house prices have been
collapsing since the spring by more than 2percent a month - an
annualised rate of 25percent to 30percent, which is far steeper than
the US suffered even at the worse point of its housing crisis. This
collapse in house prices is widely expected to trigger enormous
losses on mortgage lending, even though there is little evidence of a
close relationship between house prices and mortgage defaults, which
depend mainly on interest rates and changes in unemployment. As a
result of the market fears about their mortgage books, British banks,
including such too-big-to-fail giants as Royal Bank of Scotland, HBOS
and Barclays, which face no conceivable funding problems in any
plausible economic scenario, are trading at valuations implying that
they are almost insolvent.
What may seem more surprising against this background of universal
gloom is that Britain still has by far the highest interest rates of
any G7 country - and, therefore, the greatest scope for monetary
easing. At the latest meeting of the Monetary Policy Committee (MPC),
there was a three-way split in the vote - one member wanted a rate
cut, another proposed a rate increase and the seven others split the
difference by voting for no change. Many commentators have inferred
from this that the Bank either does not know what it is doing (a
plausible conjecture after Northern Rock) or that it is prepared to
accept a total collapse of the economy to get inflation back to
target. But could there be some other explanation for the MPC's
reluctance to ease?
I think there is. Looking at the statistics, it is still far from
certain whether the economy really is as sick as suggested by the
dismal state of the housing market and bank stocks. The media and
consumer and business surveys may be in no doubt that the economy is
in recession. And even after the flat second-quarter GDP figures,
there is so far little evidence of recession risks in Britain,
especially in comparison with the rest of Europe. For example, last
week's retail sales figures, which were much stronger than expected,
showed year-on-year growth of 2.1percent in Britain [Retailers are
united in saying the figures are wrong -cs] , compared with a decline
of 3.1percent in the eurozone. Admittedly, retail sales are erratic
and suspicious at present, but manufacturing production conveys a
similarly reassuring message - down by only 1.2 per cent on a 12-
month basis, compared with the plunge of 6.8 per cent in both 1991
and 2002. And the same can be said of employment, purchasing-managers
surveys, GDP and many other statistics - all are quite weak but show
no signs of the economic catastrophe that equity and housing markets
seem to imply. [See article above -cs]
Of course, it could be that consumers and manufacturers are simply in
denial and that Britain's real economy will collapse once the public
starts to understand the disaster anticipated by stock market
investors. It could be, however, that consumers and businesses have
noticed what is happening in the economy and have simply drawn
different conclusions from those of the markets. It is hard to
imagine that anybody in Britain is unaware of the housing slump and
the credit crunch and, as I have noted previously, financial markets
are frequently plain wrong, especially near economic turning points.
It is quite possible, then, that Britain's real economy will simply
turn out to be less sensitive to housing and credit problems than the
financial markets assume. It is equally possible, however, that the
economy will continue to deteriorate in the coming months, as is
widely expected. If this happens, and the next few months' statistics
confirm that the economy is continuing to weaken, there is every
reason to expect a strong, rapid response in terms of interest-rate
reductions from the Bank of England. That cannot, of course, be said
of the European Central Bank - which is why, despite all the present
gloom, Britain is highly unlikely to become the sick man of Europe
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