Here’s a dose of cold water to douse the facile optimism around. We
have no effective government now to make any changes in policy, so
the IMF may be talking to the wind. Their report certainly is a
somewhat a more profound analysis than yesterday’s .
The fiscal situation is deteriorating and Standard & Poors are firing
warning shots which will put up the cost of all that borrowing if
followed through. We are, in effect, being TOLD to cut government
spending and if we don’t comply we’ll be in very dangerous straits.
I warned over two years ago that if spending was not cut voluntarily
where we chose to cut it, we would face compulsory cuts on sevices we
would have preferred to protect.
xxxxxxxxxxxxx cs
=============================
TELEGRAPH 21.5.09
The Fund believes that although the drastic measures to prop up Royal
Bank of Scotland, Lloyds Banking Group and other major lenders had
prevented them from collapse, more public money needs to be poured in
if the economy is to get back to full strength. The alternative is a
"zombie" recovery as banks continue to withhold lending for years,
the IMF has told the Treasury.
The warning formed part of a stark assessment of the UK economy. In a
double-pronged assault on the Budget, the Fund praised some of the
rescue plans but dismissed the Chancellor's claim that the recession
will be over by Christmas. It said he must start paying back debt
significantly earlier than he projected last month.
However, it is the IMF's assessment of the financial system which
will cause more jitters, since many have assumed that enough public
money has now been put into the banking sector. The Fund's concluding
statement, following a week-long visit to the UK, said; "The
financial system may not yet be repaired to a level where banks are
ready to increase lending sufficiently to underpin a strong recovery.
Although banks are expected to continue to remain above minimum
regulatory capital requirements, further shocks will lead to an
erosion of capital buffers."
It added that the Government must encourage banks to raise more
capital, and to "stand ready to provide further public support where
needed."
Although it is not explicitly stated in the report, the Fund believes
further injections of public money may prove inevitable if the
Government wants to increase lending from its current low levels, and
help bring an end to the credit crunch. In comments which will spark
fears among bank investors, [If itr does believe that, why didn’t it
say so ? -cs] the Fund also suggested banks should preserve their
capital by "restraining dividends if required and converting
preference shares to common shares."
The assessment follows a similar warning from Bank of England
Governor Mervyn King last week.
The Fund maintained that the economy will shrink by 4.1pc this year -
the biggest peacetime contraction since the 1930s, and by a further
0.4pc next year. More damaging is its criticism of the Budget's
borrowing forecasts. It said: "The success of the current policy
package hinges on the continued trust in the sustainability of the
fiscal position", adding that the Government must "put public debt on
a firmly downward path faster than envisaged in the 2009 Budget."
The Fund favours sharper spending cuts and bringing the Budget back
in balance over an electoral term
=============================
ANANOVA 21.5.09
It comes as recession bears down on Government tax revenues, while
rising unemployment forces up benefit payments.
Chancellor Alistair Darling last month predicted that net borrowing
over the financial year as a whole will reach an all-time high of
£175 billion.
The figures showed a 9.5% fall in the Government's total tax receipts
to £38.8 billion compared with 12 months earlier.
April is usually a strong month for tax receipts, but the impact of
recession on the UK's struggling businesses was underlined by a 25%
fall in "other" taxes - mostly corporation tax - to £4.9 billion,
while VAT receipts were also down more than 20% to £6.6 billion.
New figures also show that mortgage lending fell by 9% during April,
dampening hopes that the housing market was on the road to recovery.
A total of £10.4 billion was advanced during the month, down from
£11.4 billion in March, and 60% below the level for April last year,
according to the Council of Mortgage Lenders.
But a better month for clothing and department stores helped lift
retail sales volumes in April. Retail sales volumes were 0.9% ahead
of March and 2.6% higher year-on-year, the Office for National
Statistics (ONS) said.
Surveys across the sector have found beleaguered retailers boosted by
a later Easter and better weather.
http://www2.standardandpoors.com/portal/site/sp/en/eu/page.article/
2,1,1,3,1204846854464.html
=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-
TELEGRAPH 21.5.09
The move by S&P came minutes before figures showed that the
Government's budget deficit hit £8.5bn in April, the most for that
month since records began.
Although S&P said lowering the UK's outlook to negative "does not
necessarily precede a rating change", it is generally considered to
be the first step towards a cut.
A ratings cut would be devastating for the economy, pushing up the
cost of borrowing for the Government, which would then feed through
to higher taxes and higher interest rates nationwide.
In a stark warning, S&P said that it would consider lowering the UK's
top-tier AAA if the next Government does not take radical measures to
reduce the scale of public debt.
"The rating could be lowered if we conclude that, following the
election, the next Government's fiscal consolidation plans are
unlikely to put the UK debt burden on a secure downward trajectory,"
said David Beers, primary credit analyst for Standard & Poor's.
Mr Beers also cast doubt on the Chancellor of the Exchequer's Budget
forecasts, saying that the Government's debt burden could approach
100pc of GDP by 2013 – and stay at that level in the medium term.
At its peak in 2013, the Government is forecasting debt at 79pc of
GDP, but the ratings agency believes that the Government has not
sufficiently recognised that the UK's public finances are
"deteriorating rapidly".
Last November, Frank Gill, Standard & Poor's director of European
sovereign ratings, said public debt above 60pc of GDP could undermine
an AAA rating.
"Our projections reflect our more cautious view of how quickly the
erosion in the Government's revenue base may be repaired, the extent
to which the growth in Government spending can be curtailed and
consequently the pace at which historically high fiscal deficits are
likely to narrow," Mr Beers said.
Ratings agencies, such as Moody's and Standard & Poor's, have been
reviewing the UK's status in light of the Chancellor's revelation in
the Budget that national debt will reach £1.4 trillion over the next
five years. Spain, Ireland, Greece and Portugal have already been
downgraded.
Stuart Cheek, head of UK Government bonds at BGC Partners, said "it's
big news," he said. He added that "it should be noted that this is
the same rating agency that rated leveraged sub-prime as AAA."
Posts
